Credit lending levels 'close to 2008 peak', regulator says

Jonathan Davidson said it would take action against firms whose businesses were based on people being unable to clear their debts.
Jonathan Davidson said it would take action against firms whose businesses were based on people being unable to clear their debts.

A financial regulator boss has warned that credit lending levels are close to a peak seen in 2008 as worrying numbers of householders may be “in too deep” with their borrowing.

Jonathan Davidson, executive director of supervision - retail and authorisations at the Financial Conduct Authority (FCA) said it would take action against firms whose businesses were based on people being unable to clear their debts.

It comes after statistics released this week by Yorkshire-based debt charity StepChange revealed that 619,946 new clients got in touch for debt advice last year – 3.5 per cent more than in 2016, and 22 per cent more than just four years earlier.

And the Leeds charity’s figures show that while 8,759 people from Yorkshire called its telephone lines for help in 2008, the year the financial crisis happened, this increased to 12,918 in 2017.

Speaking at the Credit Summit in London, Mr Davidson said: “Total credit lending to individuals is currently very close to its September 2008 peak.

“The circumstances are different now than 10 years ago, but there are still worrying numbers of householders who may still be in too deep.

“For example, one in five mortgages today are interest-only mortgages, many of which were made at the height of the credit boom to borrowers with little equity in their homes and not a lot of disposable income.

“And they won’t mature until about 2032.”

Mr Davidson said a number of customers were vulnerable to any changes in their circumstances, and to changes in the external economic environment.

He said: “They might be able to just about afford any loans you grant them today, but it is far from certain that they will be able to do so in the future.”

Mr Davidson highlighted a 9.3 per cent growth in consumer credit over the past year. He said: “This growth has been attracting a lot of attention. Which is not surprising given the link between excessive debt and the last financial crisis. Credit losses led to the near collapse of many lenders.”

Mr Davidson told the audience that a “business model that is predicated on selling products to customers who can’t afford to repay them is not acceptable”.

“We will take action against firms who run their businesses this way.”

He said that younger people were being lent a lot more relative to their incomes than the baby boomer generation because of more student borrowing.

Among 25 to 34-year-olds, 19 per cent had no savings, he said.

In its report, StepChange said that around one in seven new clients last year was under 25, and nearly two thirds of clients were under 40.

Chief executive Phil Andrew said: “Our clients show that the debt problem is far from solved. With the prospect of higher interest rates ahead, it would be a mistake to take too much reassurance from the gradual improvement in the wider economy.”