Video transcriptA new report from the Bank of England has highlighted a growing appetite for unsecured borrowing and personal loans among UK consumers during recent months.
The bank`s Credit Conditions Survey for the final three months of 2015 showed that a net percentage balance of plus 15.8 per cent of the UK`s major lenders stated they had witnessed an increase in the number of approvals for personal loans.
Overall, the main reasons for this upturn were cited as lenders hoping to boost their market share in this highly competitive area, a changing appetite towards risk among borrowers and an increased availability of funds.
The report stated that `the increase in unsecured credit availability appeared particularly apparent in other unsecured lending, such as personal loans, where credit scoring criteria were reported to have loosened`.
Indeed, both banks and building societies across the UK were shown to be increasingly likely to approve borrowers for unsecured lending during the final quarter of 2015.
This `loosening` of credit rating requirements was attributed to the overall strengthening of the economy during recent months and increased confidence surrounding the financial sector.
However, Bank of England governor Mark Carney was quick to point out that the positivity that surrounds the banking sector, and the economy in general at present, is not something that has been built upon increasing levels of household debt.
He argued that while it is true that more people are making use of personal loans and unsecured borrowing at this time, it is not something that he feels is a worrying development, nor does it present a risk to the recovery.
Indeed, research from the Bank of England has apparently shown that household debt only becomes a real issue for people when servicing the costs of their borrowing exceed 35 per cent of monthly income.
And across the UK, the number of homeowner and tenants facing such high costs of borrowing remains extremely low.
Moreover, Mr Carney argued that the banking sector has now been `sufficiently recapitalised` to withstand shocks from a rise in interest rates, should interest rates move in the near future in reaction to any BoE changes.
Personal loans remain a popular form of borrowing for households up and down the UK. However, homeowners and tenants alike when considering taking on this sort of financial commitment should seek out help via a properly regulated firm to ensure they are taking on a deal that is right for them.
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