In July there were warnings from politicians and the Bank of England that debt problems and general indebtedness was rising sharply and unsustainably.
The Governor of the Bank of England and Labour MP Rachel Reeves have suggested that UK households are over-extending themselves with personal debt.
Unsecured lending is certainly on the rise and there has been an exponential growth in car finance and car purchase deals.
Specifically, the Bank of England has warned that personal loans have increased by 10% over the past year and is now at dangerous levels.
The Bank of England noted consumer credit has recently increased more than 6 times as fast as incomes.
This is dangerously similar to sub-prime mortgages that infected the western financial system 10 years ago and created a debt burden that crippled the western banking system.
It is not just credit card debt and personal loan debt that we need to worry about; the bigger problem is car finance ‘PCP’ debt. Almost 4 out of 5 new cars are ‘bought’ through these PCP’s.
This kind of finance is particularly risky for the lender as it relies on used car prices maintaining their value. Given the Government’s warning about diesel cars and their effect on the environment it is quite possible that the value of cars being driven today would fall below the figure that is needed to sustain the hundreds of thousands of PCP deals in the UK economy. If this happens the whole of house of cards, in relation to unsecured debt, could come tumbling down and create another financial crisis.
In any event at least we cannot say we have not been warned about this next debt problem which may cripple our economy in a similar way to 10 years ago.
If you are struggling with debt or looking to file for bankruptcy, contact Farleys experienced debt solicitors who can provide advice to help you manage your debts or reduce the stress of filing for bankruptcy. Call 0845 287 0939 or email today to speak to a specialist in confidence.