BOE warns of consumer credit pocket of risk

Commenting on the Bank of England statistics Karl Werner Chief Executive of Moto Novo said “There can be little doubt that the consumer credit market is set to face major change, with an increase in interest rates now firmly on the cards and the Bank of England signalling for increased lending prudence. Following virtually a decade of upward growth for our sector, the motor finance sector needs to be prepared for what for many will be a new experience, rising interest rates and tighter credit conditions.”

“Within a benign overall domestic credit environment, there is a pocket of risk in the rapid growth of consumer credit.  Although the overall credit quality of consumer credit has improved significantly since the financial crisis, the FPC judges that lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality.  As a result, they have been underestimating the losses they could incur in a downturn.”

“The winds of change in consumer credit have been building for a while now; it is time to re-calibrate in certain areas, notably risk management and pricing. As a business, our success and that of our dealers has come from a long-term approach and seizing ‘first mover advantage’ in areas such as innovation and technology. To secure long-term success and to support customer retention, we will not be afraid to move first to help secure the long-term future of dealer finance, no dealer benefits from choosing a lender with a model which proves unsustainable.”