The recent surge in consumer lending to record levels will not be a rerun of the subprime borrowing bubble that crippled the world’s financial system in 2008, according to new research by City watchdogs.
Credit growth is not being driven by the borrowers rated as most likely to default, according to a joint article published today by economists from the Financial Conduct Authority (FCA) and the Bank of England.
“Credit growth has not been driven by subprime borrowers,” wrote economists Ben Guttman-Kenney, Liam Kirwin, Sagar Shah.
The rapid expansion of the UK’s household debt pile, excluding mortgages, saw it top the £200bn mark last year, with growth rates of more than 10 per cent over much of the last year, far outstripping GDP growth.
The increase in consumer credit has raised concerns for financial stability, with the Bank of England’s own financial policy committee warning of “pockets of risk” from some forms of consumer lending.
However, data collected from credit reference agencies by the FCA indicates people with low credit scores – known euphemistically as subprime borrowers – are not responsible for the increase, the article’s authors said.
People with higher credit scores – generally wealthier and less likely to default – have instead been responsible for the charge into cheap borrowing, such as credit cards with zero per cent interest periods.
The economists said: “Credit growth not being disproportionately driven by subprime borrowers is reassuring. As is the lack of evidence that mortgage lending restrictions are pushing mortgagors towards taking on consumer credit.”
However, “vulnerabilities remain”, they note, with consumers in debt for longer periods than previously thought.