Banks to boost reserves in borrowing fears

A HOUSEHOLD borrowing binge has led to banks being ordered to set aside £11.4billion to cope with possible losses. The Bank of England have told lenders to build up the money in their reserves over the next 18 months in case loans turn sour. They stressed there was no evidence a consumer credit bubble would burst. But Bank governor Mark Carney said the measures announced yesterday would safeguard lenders “if things become bumpy”. Households have amassed £1.5trillion of debt – £1.3trillion of that in mortgages. But the amount owed on consumer credit has been rising by about 10 per cent a year – nearly six times faster than wage growth – and now stands at £200billion.

While consumer lending is a seventh of the size of the mortgage market, the losses can be 10 times larger than with home loans. Mark Carney

A big chunk of the £200billion is in credit cards and personal loans but experts are becoming increasingly concerned about the surge in car finance, which is rocketing by 30 per cent a year.

The Bank admitted there were “pockets of risk”, although Carney said they had no plans to clamp down on car finance yet.

Mortgage lenders have also been told to ensure all borrowers could cope with a jump in rates.

Aside from households, the Bank warned Brexit and China’s ballooning national debt also poised risks to the health of UK financial providers. Mike O’Connor, head of debt charity StepChange, said: “The Bank are right to address the rapid growth of consumer credit, but there may be consequences, including potential increases in the cost of borrowing.” Oil RBS J Sainsbury SSE Severn Trent Serco Sports Direct Shell Sky Smith & Nephew Smith WH Stagecoach 251.8 254.1 1486.0 2264.0 120.2 293.0 2125.5 962.5 1347.0 1708.0 203.7 +2.0 -0.9 -21.0 -41.0 -0.8 -3.1 +22.5 -7.5 -24.0 -7.0 -4.3