Bank of England Warned UK Banks to Cut Consumer Lending

UK BanksThe Bank of England or BoE has issued directions to the banking institutions in the United Kingdom to cut back on consumer lending. It is so because the financial sector and wider economy might be under significant risk due to rising credit.

The Central Bank of UK has urged upon all the banks for making cautious decisions on lending at the moment instead of at a later time when major crisis blows up.

All the banks in the United Kingdom have adhered to the instructions issued by BoE. Consumers are finding it extremely difficult for approving new loans and credit cards. Lately, a lot of stringent rules and regulations have been put in place for procuring home loans and credit cards.

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In the past 3 months, there has been a significant decline in unsecured credit and it is the fastest drop in the past 8 years. There has been a rise in the credit scoring criteria which was not seen since 2010. A survey was conducted by Bank of England that shows a number of applications for the rejected credit cards are now an all-time high figure in the past 8 years.

Samuel Tombs who is the chief UK economist at the Pantheon Macroeconomics made the following statement:

It is now increasingly likely that the credit flows in the economy will slow over the next year, keeping growth in households’ spending weak even as real incomes start to rise again.

According to Bank of England, there has been a steep decline in unsecured household credit in Quarter 3 and the same is going to continue in the next quarter as well. In the recent months, there has been a drop in consumer lending while mortgage lending has continued to grow in the United Kingdom.

The survey report from Bank of England shows there has been a growth of secured credit in past 3 quarters as lenders agreed to provide credit when customers could deposit money or show household equity having 25 percent value of their home. The banking institutions are not eager at providing money to the customers who could afford the only small amount of deposit. On the contrary, the mortgage lenders are of the opinion that the current policy from BoE would undergo changes in the coming months.

An industry group by the name UK Finance has stated that first time home buyers and home movers have availed more loans in the month of August which has increased the mortgage lending. The group showed that 34,000 people who are first-time buyers have availed loans to the tune of 5.7 billion Pounds in the month of August which registers a 16 percent growth in terms of cash as compared to its previous month and an increase of 12% as compared to August last year.

In August, the home movers have availed loans to an amount of 8.4 billion Pounds which is an 18 percent growth since July and 20% increase since August last year. 

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.

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