We have reported previously that concerns about the volume and type of loans being made to people buying new cars is concerning some experts. Now, two other trends are adding to their worries – a large rise in the number of second mortgages being taken, and a similar rise in offers for free and cheap credit cards. The fear is that Britain has basically not changed its financial system in a significant way since the crisis in 2008, and that another “Credit Crunch” is looming.
The Guardian reports –
“It was the same before the last banking crash. Tens of thousands of households, many of them struggling to pay monthly mortgage payments, used second mortgages to bypass borrowing limits set by their mortgage lender… The latest industry figures show the number of people opting to saddle themselves with a second mortgage leapt 22% in March to its highest level since 2008… Car loans are already on the regulator’s radar. Like second mortgages, they are considered secured credit on the basis that lenders have a claim against an asset when borrowers can no longer pay monthly instalments. But cars depreciate from the moment they are bought, so they rank low down the scale of secure credit. And loans have turned in recent years into leases that have customers renewing contracts every three years, keeping them in effect permanently hooked… The main consumer regulator for the financial services industry, the Financial Conduct Authority, is reviewing the market for car leasing, which now accounts for more than 90% of car sales, to check for mis-selling to poorer households who will be vulnerable to default… The Bank of England is also on the case. More importantly, it is also looking at the big picture and what happens if unemployment suddenly rises and a large number of households default on payments.”