Unsecured credit to UK households contracted in Q4 2017, the Bank of England’s (BoE) quarterly Credit Conditions Survey has found. Lenders also said they intended to tighten criteria for the unsecured credit sector, after an increase in default rates during Q4.

Overall demand for unsecured lending products excluding credit cards fell during the period, for the first time since 2015. Secured lending products, meanwhile, registered stable levels of demand, and a slight contraction in default rates.

Howard Archer, chief economic advisor to the EY Item Club, said that the survey’s results were “reassuring” for the BoE. “It may be that heightened uncertainties over the outlook and increased concerns over personal finances are encouraging some consumers to be more cautious in their borrowing. However, the persistent squeeze on consumer purchasing power is likely to continue to fuel the need for some consumers to borrow.”

“It remains to be seen just how much effect the Bank of England’s interest rate hike has had on dampening consumers’ willingness to borrow. While the increase was just 25 basis points and interest rates are still at historically very low levels, there could well have been a significant psychological impact on potential borrowers given that it was the first interest rate hike since 2007.

“The Bank of England wants banks to provide evidence that they are lending responsibly to consumers and have not become complacent, but has stopped short of tightening borrowing controls.”

It is thought that consumers are cutting back on overdrafts and personal loans. Despite stable demand for credit-card lending, alternative forms of borrowing dried up in the final quarter of 2017, and banks expect the figure to plummet in the first quarter of this year. Lenders also expected to reject the biggest number of applicants for unsecured customer loans since the last quarter of 2008, the survey suggested.

The figure showed the largest quarter-on-quarter increase in demand for such loans since the early part of 2009.

Interest-rate setters at the Bank agreed to increase interest rates from 0.25% to 0.5% at their meeting last November, the first time for 10 years they had hiked rates.



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