A growing number of young people are worrying about the state of their finances and want to see the Government take action to curb credit card lending.
Research carried out by Sky News shows that 65% of people aged between 18 and 34 are worried about how they’ll cope if and when interest rates go up – a much higher level of anxiety than any other age group.
At the same time, new analysis from the debt charity Stepchange shows that more and more young people are seeking emergency advice on how to manage their finances, and deal with problems managing their credit.
Nearly two-thirds of the people coming to the charity for help are now under the age of 40 – just six years ago, that group made up only half of Stepchange’s clients.
This new data adds to the complex picture of Britain’s debt profile. The level of unsecured debt, which includes personal loans, car finance, overdrafts and credit cards, has recently surpassed £200bn – returning to a level last seen at the tail end of the financial crisis.
In itself, it’s not an earth-shaking amount – mortgage debt is something like eight times bigger than unsecured borrowing – but the Bank of England is worried that lenders are not taking enough care in how they decide whether to make a loan.
So while the Bank of England is still sanguine about the health of the UK economy – and has made clear signs that it plans to start increasing the interest rate soon – it is still worried about certain pockets. And chief among those is consumer credit.
Why? Well mainly because this sort of unsecured credit carries a lot more risk for banks and lenders than offering a mortgage, which is secured against a house. In the event of a downturn, people are much more likely to default on personal loans – the Bank of England says that British retail banks could faces losses of £30bn in the event of another financial crisis.
But also because the consumer has been so important to the health of the UK economy in recent years. Data from the Visa credit card company suggests that consumer spending has dipped in recent months, while car sales have also shown a decline. A nation of shoppers appears to be becoming more wary.
And perhaps with reason. The Bank of England may profess to be relaxed about the state of the economy, but not everyone is convinced.
The University of Edinburgh’s business school, hosting a biennial credit risk and credit scoring conference, canvassed professionals from the credit industry about the nation’s financial prospects.
In analysis commissioned by the insurance company LV, more than two thirds (66%) predicted another credit crunch was likely to happen by 2022 and more than a third (38%) believed a financial crisis could hit even sooner – within the next three years.
That might explain an appetite for greater restrictions on credit card companies. Sky Data asked our sample of adults if they would support Government restrictions on how much spending people should be allowed to accrue on a credit card, and found 64% in favour of statutory limits.
The greatest support came from young people, with seven in 10 backing the idea.
Nicky Morgan, chair of the Treasury Select Committee, told Sky News she would be monitoring the level of household debt.
She said: “I think it’s always going to be very unwise to continue to lend to people who cannot pay back their debts and have no way of doing so.
“That’s deeply stressful for the people who have those debts, it’s also very bad for the banks and lenders.
“In my experience it’s impossible to say where the next crisis is going to come from, but undoubtedly people are looking at whether it’s very high household debt, car loans, other forms of unsecured lending, and worrying that that could be sowing the seeds for future problems.”
Ah, car loans. It’s impossible now to have a conversation about the levels of debt without reference to the booming market in car finance. It’s now worth around £53bn, and often cited as a sign of how reliant we are on credit. But those who run this sector maintain it is one of the safest parts of the credit business.
“There has been some inaccurate comments about this, but to be honest, this is a big market, and it’s only right that it’s open to scrutiny,” said Adrian Dally, head of motor finance and the Finance and Leasing Association.
“It’s obviously open to scrutiny by the regulators, that’s their job, but equally it’s only right that we’re open to scrutiny by the public as well.
“But it’s a question of getting this into perspective. Car finance amounts to just 1.2% of household income. So in that sense, although it’s a significant area of consumer lending, you have to get it in proportion. Arrears rates are at historically low levels, and for motor finance, at a lower level than for other forms of credit.”
It is a complex picture, in cars as much as the rest of the economy, and it may be about to become more complicated. Interest rates will rise before long, perhaps as soon as November, making it more gradually more expensive and onerous to borrow money.
Credit is not a bad thing in itself – the problem come when you can’t pay back the money. And when interest rates go up, that problem will become more onerous.
Sky Data interviewed a nationally representative sample of 1,055 Sky customers by SMS 28 September 2017. Data are weighted to the profile of the population.