As at the end of 2007, the total amount of UK bank and building society lending outstanding to individuals and businesses was £2,106.7bn, a rise of 12.8% on 2006 and 53.8% higher than the figure recorded in 2003. After a number of years of low interest rates and sustained economic growth, borrowing levels in parts of the household and corporate sectors have increased significantly.
This Key Note Market Report covers lending to: individuals, including consumer credit and loans secured on dwellings; and corporate bodies, including other financial corporations, non-financial corporations, unincorporated businesses and non-profit-making organisations. In 2007, the largest sector was loans secured on dwellings. The fastest-growing sectors between 2003 and 2007 were loans made to other financial corporations and loans to non-financial corporations.
The global credit crisis has had a significant impact on the UK credit and debt management market. In 2007/2008, tighter bank credit restrictions and rising mortgage interest rates have contributed to falling house prices and an increase in house repossessions. Simultaneously, rising inflation — caused, in part, by higher food and energy prices — has affected the finances of many households, and has led to increases in the numbers of households seeking debt-management advice.
A new set of standards to help people resolve their debt difficulties through individual voluntary arrangements (IVAs) came into force in February 2008. The new standards aim to establish a streamlined process for consumers seeking IVAs, and also set out the principles that will apply to creditors and IVA providers. The IVA industry experienced a difficult year in 2007 owing to a variety of factors, including: falls in the number of IVAs registered; increased competition; creditor reluctance to accept IVAs; and consumer unease caused by adverse press coverage. It is hoped that the new standards will restore confidence in this form of debt management and that the number of IVAs registered in 2008 will rise significantly.
Tighter lending conditions by banks, as well as increases in the cost of borrowing, are expected to affect bank and building society lending in 2008. Despite this, the level of outstanding debt is forecast to rise further in 2008, although the annual percentage rate of increase is projected to be lower than in 2007. With the numbers of house repossessions forecast to rise sharply in 2008, and with further increases forecast in the number of individual insolvencies, demand for the services of the debt-management companies looks likely to remain strong.
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