Rise in Unsecured Loans Threatens Economy
April 3rd, 2008 | by tejvan |With a marked drop off in the number of mortgages available, UK consumers have been switching to other means to finance their shortfall. In particular, last month showed an unexpectedly large rise in the number of unsecured loans. It appears consumers are using unsecured loans to meet the shortfall created by the declining mortgage market.
In the past UK consumers have used mortgage equity withdrawal to finance spending. But, this remortgaging is becoming more difficult due to stagnating house prices and more expensive mortgages. Instead it appears consumers are taking out unsecured loans.
However, this threatens the viability of the economy because it leaves consumers very vulnerable to any downturn in the economy and rise in unemployment.
Earlier this week, NatWest, Royal Bank of Scotland and Kent Reliance Building Society became the first lenders this year to raise their variable mortgage rates for existing customers. This is putting pressure on the Bank of England to cut rates next month. However, even a cut of 0.25% to 5% is unlikely to lead to lower mortgage payments for consumers, but it will help prevent increases
Britain’s binge on credit as mortgage become expensive at Telegraph
