Rise in personal loans dangerous, Bank of England official says

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A sharp rise in personal loans could pose a danger to the UK economy, a Bank of England official has warned.

Outstanding car loans, credit card balance transfers and personal loans have increased by 10% over the past year, the Bank’s financial stability director Alex Brazier said.

In contrast household incomes have risen by just 1.5%, he said.

“Household debt – like most things that are good in moderation – can be dangerous in excess”, Mr Brazier said.

Mr Brazier, in a speech to the University of Liverpool’s Institute for Risk and Uncertainty, added that this increase in debt was “dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy”.

He warned that High Street banks were at risk of entering “a spiral of complacency” about mounting consumer debt levels.

“Lending standards can go from responsible to reckless very quickly.

“The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy face – are actually growing,” Mr Brazier added.

Mr Brazier hinted that the Bank of England could force banks to take further safeguards against the risk of bad debts if it was deemed necessary.

Just last month, the Bank of England told banks to beef up their finances against the risk of bad loans.

They were told to set aside £11.4bn in the next 18 months in case future economic shocks meant some borrowers could not keep up their repayments.

Mr Brazier said by September the Bank will have assessed whether the rapid growth in consumer lending “has created any small gap in the line”.

“If it has, we’ll plug it,” said Mr Brazier.

In June, Bank of England governor Mark Carney said lenders appeared to have forgotten some of the lessons of the financial crisis.

Despite these concerns, Mr Carney stressed that the UK financial system was far stronger than at the time of the great banking crash in 2008-09.

Britons face debt hangover in 2017 from festive spending

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Many Britons will start 2017 with both a debt- and alcohol-induced hangover after using credit cards to fund Christmas celebrations, according to new research.

Some 85% of people surveyed by uSwitch said they would be paying off credit cards into next year. Just over half believe they will still be settling up for this Christmas when the next festive season rolls around. People will carry an average £636 on credit cards into 2017. Price comparison site uSwitch questioned 1,261 adults and found that 65% of them are concerned about their level of debt. Mark Carney, the Governor of the Bank of England, has already warned about high debt levels within British households, after it emerged in November that credit card debt had reached record levels.

According to the people questioned by uSwitch, 19% spent beyond their means over the festive periods. A quarter did so to capture the “magic of Christmas”. When respondents were asked why they had spent more than their finances allowed, 30% said it was because Christmas was more expensive this year, while 18% said it was because it was expected. At the same time, 9.1% candidly admitted that they did so “because of competition from other family members/friends”.


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