Debt has been growing faster than household incomes
A Bank of England research paper from June of 2017 suggests that consumer borrowing has grown by 10.3% between April 2016 and April 2017, primarily from credit cards and car financing.
The Bank of England’s Financial Stability Report (dated June 2017) reviews the overall borrowing risk of the nation, particularly with the recent years’ of relaxed and lending conditions - favourable conditions which have appeared to have reached their twilight.
Something that the report mentions but is most certainly well known by home-owners is that the report admits that current UK household indebtedness has been directly impacted by the historically high prices of houses in the UK. Also, another point that will come as absolutely no surprise is that households with high debt servicing ratios (DSR) are more likely to encounter repayment difficulties, and that if an increase in unemployment were to happen it could double the quantity of what the report calls ‘vulnerable’ households.
The report reiterates the Bank of England’s recommendation from last year that lending institutions must maintain good practice and prevent the lending to potentially vulnerable customers. It is through mortgage lending that the UK lenders are most at risk from. This has mostly been done to level that that the Bank of England is satisfied with, the report says. While the report communicates that lending institutions are in strong capital positions and are protected through regulation against over-lending, what should be of value for borrowers to know is that there is a pattern that unsecured borrowing (those not backed by assets such as credit cards) has been on the rise, and should a downturn be encountered by the UK it could pose risks for borrowers as well as lenders. A downturn in this case could be either the unprepared rise in mortgage interest rates, a fall in income though a pending recession and associated unemployment.