Crikey, that’s some chart.
But, what does it mean for future of credit etc?
1. Those who are attractive to lend to don’t need or want credit
2. Those who need credit most are not attractive to lend to.
This will be interesting https://t.co/PaUhTg8qoJ
— Mick McAteer (@MickMcAteer) October 29, 2020
It would seem that Britain has used the 9 months to pay off its consumer debt. Have we simply dumped our personal borrowings on our Government?
With so much public debt and so little interest available, it’s no wonder defined benefit pension schemes are fast becoming the nation’s bankers- is this why TPR are so keen on de-risking? What but pension schemes could pick up the cost of furlough without anyone seeming to getting hurt?
What will be interesting, and here I will be relying on the Office of National Statistics, is to know just how interested private individuals have been in sinking cash saved on commuting , meals out, holidays and general jollification into long term savings and how much into the rainy day fund (codenamed “second wave”).
All the signs are that this Government, while it was comfortable with lockdown I, is not so sanguine about Lockdown II. I suspect this is for financial reasons and this is both about personal and public finances. What is needed is a whole lot of work (or as economists would have it – productivity). What is about to happen is that the work equivalent of quantitative easing – the furlough – will end on Saturday night.
These are not easy thoughts, my fellow Brits. We work to pay the bills and if we do no work, we rely on those who do to pay them for us. The alternative is the kind of problem we last saw in the great depression (before we had fancy banking).
This very fundamental issue looks like what’s behind the sharp intake of breath we’ve seen from world markets this week. The elephant is poking his head out of the window and waving his trunk about and people worry about the state of the room!
Who pays? Why the vulnerable* of course!
Pension schemes aside, the other easy target for those selling credit is the derelict borrower.
As Mick’s tweet points out, the people left with consumer debt are the people least likely to afford it, which means – the way credit markets work – that the cost of their debt is higher. The banks have found a way to balance their books and it’s at the expense of those who haven’t got their debt under control. This is from the Bank of England report Alistair is promoting.
The effective rates – the actual interest rate paid – on interest-charging overdrafts continued to rise in September, by 3.52 percentage points to 22.52%. This is the highest since the series began in 2016, and compares to a rate of 10.32% in March 2020 before new rules on overdraft pricing came into effect.
Someone brighter than me will tell me just what happened to make personal credit so much more expensive, I’ll just ruminate on how the cost of unsecured borrowing is sky-rocketing and how this isn’t called profiteering (when we are facing the prospect of negative interest rates). The problem first came to my attention with this article from June this year from MoneyExpert.com
The uptick primarily comes from an increase in rates on subprime credit cards, which are targeted at households which can’t pass credit checks and can’t qualify for credit cards from mainstream banks.
* “vulnerable” in this context means “financially vulnerable” – people we used to call “poor”.
Do credit markets have to dump on the vulnerable?
I ask this question of friends like Con Keating, who I invite to comment on this blog and the BOE numbers.
If they do, then all the sidecars in the Nest car-park can stay there. If those who are borrowing unsecured are seeing their interest payments rocket to over 22.5% , then what are we doing prioritizing their saving more?
And why are organizations calling for an increase in auto-enrolment rates , especially the recommendation that we contribute from pound one of our salary?
And why are we charging 1.7m low earners 25% more for their pension contributions, just because they don’t earn enough to pay income tax?