MSE News: Bank of England warns lenders about steep rise in consumer debt

Former_MSE_Ben_S · 27 June 2017 at 5:12PM

The Bank of England wants lenders to tighten up mortgage lending criteria and protect themselves from defaults...

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'Bank of England warns lenders about steep rise in consumer debt'

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ceredigion · 27 June 2017 at 7:07PM

Why is this in the stoozing section

jamesd · 27 June 2017 at 9:06PM

Could be in several but stoozers may be quite significantly affected by restrictions and are likely to have far more card borrowing exposure than most people. Worse deals or reduced limits or just lower limit increases would cut income.

The better sort of existing customer deals that I get offered at the moment include 3.4% fee to have money at 0% interest until December 2019. A 29 month existing customer offer is pretty good at that price. I'm typically making more than 12% a year on the money so credit that cheap is a bargain. Life of balance offers for me tend to be 4.9% with no fee, also thoroughly profitable.

[Deleted User] · 27 June 2017 at 10:25PM

What the B of E has actually told the banks is that they must set aside another £11.4 billion to protect themselves about any of the £198 billion worth of debt they hold from going bad. They haven't actually told banks to tighten up any lending but you might infer that this might be the result. And for the record the rise in consumer debt has slowed down over the last 2 months.
Sometimes I wish that MSE wouldn't act like the Daily Mail -)

MiserlyMartin · 27 June 2017 at 11:08PM

Thats right, and where is this £11.4 billion of shoring up going to come from? From consumers. It ought to come in the form of higher interest rates on cards and loans but I fear that some of it will come in the form of lower savings rates to those who have suffered for years with the paltry rates. Carney is an idiot. You couldn't make it up. We've had the base rate way too low for too many years causing this reckless borrowing and now he comes out with this?!

Again, like the last time its going to be the prudent bailing out the reckless when they default on all that bad debt.

miller · 28 June 2017 at 10:32AM

MiserlyMartin wrote: »

Thats right, and where is this £11.4 billion of shoring up going to come from? From consumers. It ought to come in the form of higher interest rates on cards and loans.

I agree, at least one of my credit cards now has its rate tied to the Bank of England base rate, so raising that would increase the APR on the card.

I assume Carney was one of the 5 who voted to hold rates last time; seems inconsistent with this message.

miller · 28 June 2017 at 10:34AM

MiserlyMartin wrote: »

We've had the base rate way too low for too many years causing this reckless borrowing and now he comes out with this?!

Not to mention the Funding for Lending Schemes meaning Banks/Building Societies don't have to pay proper rates and Quantitative Easing; when does he plan to unwind that.

enthusiasticsaver · 28 June 2017 at 10:41AM

Unfortunately this is the result of too low interest rates for too long. The rise in car dealership borrowing in particular is truly staggering.

I cannot feel sympathy for stoozers unable to get more 0% deals. This is the price you pay for borrowing to invest and not something I have ever got involved in although I know some say they have made a mint on it. We have two credit cards both paid off in full every month and no loans/overdrafts but getting a paltry rate on savings due to the over indebtedness of consumers and governments. Luckily investments seem to be doing quite well though.

RedDwarf82 · 28 June 2017 at 1:57PM

So we have moved from

http://www.bankofengland.co.uk/publications/Documents/records/fpc/pdf/2014/record1407.pdf
"whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, Bank Rate were to be 3 percentage points higher than the prevailing rate at origination"

to

http://www.bankofengland.co.uk/financialstability/Pages/fpc/intereststress.aspx
"whether borrowers could still afford their mortgages if, at any point over the first five years of the loan, their mortgage rate were to be 3 percentage points higher than the reversion rate specified in the mortgage contract at the time of origination (or, if the mortgage contract does not specify a reversion rate, 3 percentage points higher than the product rate at origination)"

?

To be honest, at least I can understand the new recommendation. What was the old version supposed to mean? If the SVR (Bank Rate) were to increase 3%... the mortgage rate would probably increase approximately the same, but there are no hard rules about this, right? And if the approximation is right... the recommendation hasn't actually changed, has it? Different wording to say the same?
I may have misunderstood something...

Also why is the "first five years" thing there? What does it change? If I take a 5 years fix the thing starts to make even less sense. I guess banks will need to start removing the reversion rate from the mortgage contracts? :-p

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MSE News: Bank of England warns lenders about steep rise in consumer debt

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