Personal loans pose threat to the banks

THE boss of Virgin Money has warned that cheap personal loans could pose a threat to the financial system as the banking sector marks 10 years since Northern Rock collapsed.

Jayne-Anne Gadhia said personal unsecured loans were priced too low for a good economy “let alone one that might have an uncertain outlook”.

Ms Gadhia, who worked under Fred Goodwin at Royal Bank of Scotland until 2006, called for regulators to keep a watchful eye on the car finance market.

Northern Rock’s collapse 10 years ago saw the lender become a symbol of the financial crisis in the UK and crash into Government ownership.

The chief executive – who oversaw Virgin Money’s takeover of Northern Rock’s “good” operations in 2010 – said: “I would say that in the UK the car finance market is the area that should be watched.

“The other area that I find concerning, and Virgin Money are not in this, is personal unsecured loans that people might take for a kitchen or conservatory.

“The pricing on those loans is very low. I saw a pricing chart only last week and they are at about three per cent.

“I would say that probably there is an issue that the price of unsecured loans is not pricing in the real risk of how they might perform in a good economy, let alone in one that might have an uncertain outlook.”

But she added that the UK financial sector is better protected than in 2008.

The Bank of England has attempted to shield the UK financial system since the banking crisis then by forcing high-street lenders to hold extra capital.