Britain’s big day for exiting the EU is less than 40 days away, on March 29. Will the consumer credit market survive as both Brits and banks tighten their belts? The complexities of Brexit continue as the unintended consequences affect the consumer finance market. Forbes reports:
- Brexit-linked uncertainty that has been swirling since the 2016 referendum is finally having a material impact on the economy.
- Recent GDP data showed that the U.K. economy grew at its slowest quarterly rate since 2012 in the last three months of 2018, while the number of insolvencies among individuals and businesses have soared.
- Personal insolvencies rose by 16.2% last year to reach their highest levels since 2011, according to recent figures released by the Insolvency Service, while the number of Individual Voluntary Arrangements reached a record high of 71,034.
The (London) Telegraph reports credit card stress from another angle. Credit card offers are looking less attractive then they did last year in the UK.
- The best credit card deals have disappeared from the market in the past 12 months, following a warning from the City watchdog that customers were becoming overly reliant on cheap debt.
- The Financial Conduct Authority (FCA) concluded its investigation into the credit card market last spring and called on banks to ensure customers paid back their debt as quickly as possible.
- But the regulator’s intervention is cited as a major reason for the disappearance of lengthier interest-free dealssince then.
While your US mailbox is probably getting daily offers from Bank of America, Citi, and Chase on interest free balance transfer offers, our friends in the UK experience stress: Shorter Terms, Higher rates.
- In the past year the best 0% balance transfer credit card has shrunk from a 37-month interest-free period to 32 months, according to data provider Moneyfacts.
- Rather than reducing a customer’s overall borrowing costs, the withdrawal of the best cards may mean that borrowers are charged more in fees, given they will be moving their balances more frequently.
- For a customer moving a £3,000 balance, this would amount to a £60 fee with the Post Office and £90 to move to Sainsbury’s Bank. By being hit with balance transfer fees more frequently, the overall cost to the consumer could be higher in the long run.
All this and the Bank of England reports significant fall off in mortgage lending demand.
- The Bank of England’s gauge of demand for mortgage lending over the next three months fell to -17.5 in the fourth quarter of 2018 from 0.2 in the third quarter, its lowest level since the end of 2010.
Not to be outdone by the credit card business, where demand plummeted:
- Its measure of demand for credit card lending over the next three months fell to -20.7 from -7.2, the weakest reading since the quarterly Credit Conditions Survey started in 2007.
Losing confidence in Theresa May? Tony Blair, where are you?
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
