Uptick in loans highlights challenge households face

interactive investor comments on the BOE Credit Conditions Survey.

The Bank of England has today published its latest quarterly survey of bank and building society lenders covering three months to end of February 2022.

Highlights include:

• Lenders reported that overall demand for unsecured lending increased in Q1 and was expected to increase in Q2. Within the overall figure, demand for both credit card lending and other unsecured lending increased in Q1 and were expected to increase in Q2.
• Lenders reported that the availability of unsecured credit to households increased in Q1 and was expected to increase in Q2.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The increase in credit card borrowing, loans and other forms of credit under the unsecured lending banner reported by lenders in Q1 highlights the challenges households face in meeting the growing cost of living.

“Inflation, which reached its highest level in 30 years in March, continues to outstrip wage growth – meaning that households will have to fork out more to maintain their current level of expenditure. The worry is those struggling to make ends meet might become dependent on loans to cope with the inflationary stranglehold on their finances, which could be storing up problems further down the line when repayments are due.

“The cost-of-living crisis has gone from bad to worse for consumers with the price of seemingly everything going up, from groceries to how much we pay for fuel and energy. Living standards are set to get worse before they get better, and lenders are acutely aware of this – anticipating demand for loans to increase further in Q2.

Buy Now, Pay Later a banana skin

“The increase in the cost-of-living also risks people turning to Buy Now Pay Later (BNPL) schemes to help tide them over. You can now buy essential groceries through some BNPL services.

“BNPL schemes can be a particular banana skin for those embroiled in debt. Many BNPL services don’t subject customers to a 'hard' credit check that can leave a footprint on their credit report. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills. While it might be tempting to delay payment - it can be a slippery slope into debt.

“Worryingly, many people are still unaware that BNPL schemes are a form of credit and are guilty of skim reading the T&Cs or simply ticked a box to say they had read them. Customers can be referred to debt collectors and their credit scores could be tarnished if they miss payments.

“Those struggling with debt do not have to suffer in silence – there is support out there. The key is to act swiftly and contact creditors for more support. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.”