Need to borrow money then do it now before the industry has a crackdown.
With the uncertainty of Brexit and what effect it will have on the UK economy there may be tougher and stricter times ahead for consumer borrowing.
The Bank of England has warned banks to be tighter with their application process and ensure customers can afford their repayments for the length of the loan.
Banks have also been warned to put aside funds should there be another financial crisis around the corner.
The main factor that will cause this to happen is consumer debt.
Credit card, personal loans and car finance are on the rise but wages are not.
The Bank of England’s Warning
Mark Carney, Bank of England’s governor stated that the UK’s financial risk is currently at level ‘standard’.
However, he advised that there were many factors to consider to ensure the level did not become higher.
In case of any foreseen financial problems banks will put aside buffers of £11.4 billion over the next 18 months.
Also, the Bank will test exposure to consumer credit three months earlier so that they can adapt where needed.
Carney believes that if consumer borrowing continues to rise and lenders become more lenient on lending then there may be problems ahead.
The largest growth in consumer spending seems to be in the car finance as it grew by 15% over the last year.
This is compared to a rise of 9% for credit cards and 7% of loans.
The figures for credit borrowed that consumers fail to pay back is higher among credit cards and loans than it is for mortgages.
This is because these are unsecured debt unlike mortgages and so lenders have nothing to ‘go after’ to recoup their money.
Although the figures for bank losses on consumer credit is low currently the fear is that post Brexit and inflation rises will cause consumers to struggle.
To reduce the impact of inflation rises the Bank plan to tighten affordability tests for mortgage lending so that they can ensure borrowers can afford their repayments when interest rates increase.
These strategies are being put in to effect as 3 out of 8 members of the Monetary Policy Committee voted to raise interest rates to 0.5 per cent earlier this month due to concerns over rising inflation.
The Bank of England will also continue to come up with contingency plans to cope with the effects of Brexit negotiations and the deals Britain will have with the European Union.