UK lenders tightening consumer credit availability

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According to a survey by the Bank of England, lenders tightened consumer credit for the first time in six years in the first three months of 2017. 

Building societies and banks across the UK said that they also plan on tightening lending further in the second quarter of the year.

Almost one fifth (18.8 per cent) of lenders expect to cut the money the amount of consumer credit they offer between now and the end of June. In January, the last time the BoE published its credit report, only 7.9 per cent of lenders said they planned on tightening the availability of unsecured credit to consumers.

The economic outlook of Britain was reported by lenders as being the biggest factor behind plans for cutting credit supply.

“Lower capital investment was reported to be exerting a significant drag on demand for corporate lending in the first quarter, although increased merger and acquisition activity had pushed up on demand,” said the Bank of England’s credit conditions survey.

With inflation rising and wage growth stalling, there’s a concern that consumers spending will be affected.

Robust consumer spending has been key to the health of Britain’s economy since last year’s vote to leave to leave the EU. The consumer spending boom was partly due to an expansion in consumer lending.

Careful lending measures welcomed by economists

Last month the BoE’s Financial Policy Committee said that it was concerned about increasing household debt levels, with consumer credit “growing particularly rapidly”.

“The recent rapid growth in consumer credit could principally represent a risk to lenders if accompanied by weaker underwriting standards,” warned the Bank of England’s Financial Policy Committee this month.

“The Bank of England will be pleased to see lenders tightened credit scoring criteria for unsecured lending in the first quarter and expect to tighten them significantly further in the second quarter (particularly for credit cards),” Howard Archer, chief UK and European economist at IHS Markit, was quoted by The Telegraph as saying.

“If the fundamentals for consumers do weaken further as expected over the coming months, it is vital that banks adopt tight lending standards in granting unsecured consumer credit, or it risks causing serious debt problems for the economy. This would be reinforced if the Bank of England felt compelled to raise interest rates due to mounting concern over the potential inflation overshoot.”

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