A boom in cheap loans provided by the Bank of England is fuelling Britain’s consumer debt bubble, The Sunday Times can reveal.
High street lenders have ramped up their use of a special lending facility created by Mark Carney, the Bank governor, after Britain’s vote for Brexit. They have now borrowed more than £72bn from the Term Funding Scheme (TFS), an analysis of public disclosures reveals — a 30% jump since the end of March.
The cash has been used by banks to fund the surge in credit card lending and in unsecured personal loans — the same types of credit that have prompted warnings of doom from Bank officials.
In effect, the Bank of England is the source of the credit boom that it is attempting to tame.
Last month, Alex Brazier, its director of financial stability, warned lenders against slipping into a “spiral of complacency” over consumer debt. He said the amount of loans, credit cards and car loans had jumped 10% over the past year, while wages had risen by only 1.5%.
Carney himself warned in June that consumer credit had “increased rapidly”. He added that “lenders may be placing undue weight on the recent performance of loans in benign conditions”. High street banks have taken little heed of these warnings and have binged on the Bank’s programme, which offers four-year funding at rates of 0.25%.
Lloyds Banking Group has doubled its use of the scheme over the first half of 2017 and has now borrowed £13.5bn from it. Barclays drew down £10bn in the six months to the end of June.
Virgin Money, an increasing source of concern in the City due to its aggressive push for market share in credit cards, expanded its use of the scheme by a staggering 308% between January and June. It has taken a total of £4.9bn. In June alone, Sir Richard Branson’s lender took £1.5bn, according to its half-year results.
HSBC is the only big high street lender to shun the funding scheme.
Analysts say the impact of the Bank’s cheap loans is plain to see in the low-interest debt being offered. TSB and supermarket lenders such as Tesco Bank are offering tens of thousands of pounds in unsecured loans at rates of about 3% — cheaper than some mortgages.
The Bank of England is attempting to tackle the issue of consumer debt. It is said to be in “daily contact” with certain lenders about their practices, according to City sources. The regulator is demanding detailed information on how they approve loans and are particularly focusing on introductory 0% rates on credit cards and how high street lenders assess affordability on loans.
However, the Bank also pumped a further £15bn into the TFS early this month, due to increased demand.
Shareholders in banks are concerned about the acceleration of lending. “If we manage to maintain full employment and rates remain low then we should be fine. But that’s a big if,” said one. “We don’t know how long this cycle is going to last and when the downturn will come. It’s interesting to see just how aggressive the banks are being.”
The Bank of England declined to comment.