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Cast your mind back little over a decade before the financial crisis ripped apart the seams of the banking world and let us all peer at the mess within, and you may recall 100% mortgage, bumper spending sprees and easy credit.
The proliferation of easy credit and the banks’ reckless attitude to affordability checks pushed borrowers into dire straits when the house of cards came tumbling down in 2007/08, so we wouldn’t be daft enough to repeat the process just 10 years later.
At least you’d hope not.
After the global financial crisis, bank bailouts, and home repossession, governments and regulators vowed to never let it happen again. Consumers wouldn’t find themselves struggling to pay their loans and lending criteria was tightened - especially around mortgages.
While it made it tougher for people to get on the property ladder and small businesses struggled to raise cash, making sure people weren’t borrowing beyond their means is a fundamentally good idea.
The problem is that memories are short and borrowing is back in vogue. Just a couple of days after my own credit card limit was boosted by £1,500 without my asking it to be, a work contact told me they had been offered a loan from their bank.
OK, banks offer loans all the time, that’s not unusual. What was worrying was the bank was encouraging taking out a loan to buy a car, putting in a helpful advert for a high end (expensive) car and the cost of it, in the advert.
Added to the mix is Barclays’ ‘temporary deposit’ mortgage, that’s being heralded as the return of the 100% mortgage. The bank of mum and dad stump up a deposit that’s kept in a savings account for three years to protect against house price falls and then they can have their money back.
Surely there are too many echoes from 2007 to ignore?
If you’re not convinced, then let me offer you some facts about the mess that Britain is getting itself into when it comes to household debt:
There are people who will see this thirst for spending as a good thing; surely it means the economy is in good shape and optimism is high if people can hit the shops so regularly.
The problem is that we’re relying on debt to fund our spending and the sustainability of that arrangement. With wages failing to keep pace with rising inflation, and the cost of living set to increase further this year, where will people find the cash to service this growing mountain of debt?
The City regulator, the Financial Conduct Authority (FCA), is already showing concern. Last month it published new rules telling credit card firms they have to help customers stuck in debt rather than profiting from them.
It said around 3.3 million people are in ‘persistent debt’ in the UK, which it defined as paying more in interest in charges than is being repaid on the loan in an 18 month period.
Credit card providers will have to prompt customers to make larger repayments to reduce the cost of their debt but if they remain in persistent debt for three years then repayment plans will need to be put in place.
Any customers refusing to pay back more of their loans even though they can afford to could have their credit card suspended.
The FCA report will be followed by one from the banking regulator, the Prudential Regulation Authority (PRA), which is now looking into whether lenders are making it too easy to get a loan and whether the credit quality of borrowers is good enough. It doesn’t take a genius to work out what the answer will be.
We are back to square one when it comes to borrowing, with neither lenders nor consumers learning any lessons from the past. We once again seem to have arrived at a place where banks are lending willy-nilly and consumers are lapping up the loans.
The debt boom will eventually lead to bust and households need to ensure they are tackling their credit cards now, before it is too late.