Squeeze on credit 'likely to continue'
Cost of borrowing will remain high as credit card lenders look to fee income
British consumers and firms will continue to face a credit squeeze even as the economy recovers, with costs remaining high and credit card companies re-imposing annual and monthly fees, a report out today says.
The Precious Plastic 2010 study by accountancy firm PricewaterhouseCoopers (PwC) also found there had been a "striking" drop in new lending, with unsecured lending across the industry falling by 39 per cent and secured lending by 79 per cent this year.
Supply of credit is unlikely to increase even if consumers do regain their confidence, pushing some into the arms of less mainstream parts of the industry – such as door-to-door lenders or pawn- brokers – which often charge punitive rates. "As the recovery gains momentum and consumer demand for credit begins to return, PwC believes lenders will be unable or unwilling to increase supply sufficiently to match demand," the report says.
"This will leave consumers surprised at both the cost of credit and the difficulty in gaining access to it. Some consumers will be forced towards less mainstream corners of the industry." Even those who manage get their applications for credit accepted will face new charges, as lenders seek to repair balance sheets ravaged by the credit crunch.
The report particularly highlights that some credit card companies' business models are "no longer sustainable", with some finding it hard to gain funding even from their own increasingly risk-averse treasury departments.
"With traditional revenue lines under pressure, the current credit card business model is no longer sustainable. PwC expects annual or monthly fees to become the norm," the study says. "Fees will come from both the higher end of the market (where customers will pay for access to premium benefits) and from the lower end of the market (where more marginal customers will be expected to pay for access to even a basic credit card)."
The trend is already in evidence. Egg has started levying a £1 monthly "inactivity fee" on some account holders. M&S Money "Premium Club" customers pay £10 a month for triple reward points, travel insurance and in-store café vouchers.
Despite the difficulties, there are still new players interested in entering the market, and the Financial Services Authority is reporting "a number of applications for new banking licences". Bank of China, for example, has said it is interested in operating in the UK. The Government is keen to see new entrants boost competition in a market it sees as dangerously over-consolidated.
HSBC and Barclays are this week expected to make statements giving more signs that the alarming levels of bad debt are starting to ease.
- 1 Isis burns thousands of books and rare manuscripts from Mosul's libraries
- 2 Scarlett Johansson new band 'already hit with legal complaint' from another The Singles
- 3 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Liam Gallagher brands Kanye West 'utter s**t' during BRIT Awards performance
Isis burns thousands of books and rare manuscripts from Mosul's libraries
Husband and wife die holding hands within hours of each other after 67 years of marriage
Mohammed Emwazi: Family of man named as 'Jihadi John' described by neighbours as 'normal Muslim family'
Mohammed Emwazi: Nine things we know about man named as Isis militant 'Jihadi John'
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
This is what it's like to be dead, according to a guy who died for a bit
iJobs Money & Business
£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...
£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...