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.
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
No EU referendum under Labour: Ed Miliband to reveal that vote on membership is ‘unlikely’ in next Parliament if party wins power
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
Europeans have ‘got whiter’ due to natural selection in past 5,000 years, scientists say
Fracking is turning the US into a bigger oil producer than Saudi Arabia
The rise of Ukip: Study warns Labour that Eurosceptic party's electoral base now 'more working class than any of the main parties'
- 1 Is your name now 'banned' in Saudi Arabia?
- 2 Tony Benn meets Ali G: Watch Labour veteran burn Sacha Baron Cohen
- 3 Women do experience two different types of orgasm, study reveals
- 4 Istanbul protesters take 'Ellen selfie' from the back of a police van
- 5 Lady Gaga has struggled with eating disorders in the past, so it's indefensible that she's glamourising bulimia in her SXSW set
iJobs Money & Business
£35000 - £43000 per annum + Bonus and Benefits: Harrington Starr: A global lea...
£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...