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News Snippet: Subprime lending fears grow

This week lenders have found themselves under increasing pressure amid concerns over the consumer credit market. This follows the Bank of England’s recent directive which will see banks reserve a further £11.4BN in order to strengthen finances and mitigate the risk of bad loans.

 

The Financial Policy Committee (FPC) sighted that lenders had become complacent and that they may be placing too much weight on the current performance of loans in what they described as ‘benign conditions’.

 

Image of the Bank of England

The Bank of England

 

This favourable climate has seen borrowers keep on top of repayments, while lenders have been further inclined to accept loan applicants with a weaker credit history. Analysts however have highlighted the rising cost of living as a factor which could lead to issues with flexibility for borrowers. Furthermore, a fall in the real wage rate has led to increased strain on household budgets.

 

 

While warnings have been issued to firms in the personal loans and credit card space, the car finance sector has taken centrefold. This comes in part due to the size of the UK car finance market (roughly £40BN) but also its rate of growth with the rise of Personal Contract Purchase (PCP) agreements acting as a key influence. As a result the Bank is soon expected to issue new measures in order to reduce venerability and ensure resilience in the consumer credit industry.


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