Rises in interest rates between 2% and 3% over the coming three years will mean that the average borrower will need to set aside an extra £1800 per annum, just to keep up to date with their credit cards and loans, said PwC accounts in a new report.
These changes are due to new legislation that requires banks to keep hold of more of their capital and a continued shortage of liquidity, with the interest rate increases coming despite the fact that rates are no longer linked directly to changes in the Bank of England base rate.
The report also cautioned that the next 12 months could tough for lenders, with existing borrowers keen to ‘shore up’ their financial situation by reducing existing debt and increasing savings rather than borrowing further.
Typically, in 2010, the average British household reduced its overall borrowing by £500, with this trend looking likely to continue. PwC said it believe that weak consumer confidence was leading to a more cautious approach toward borrowing, with over a million less credit cards being issued during the past year – bringing credit card ownership to its lowest level in over a decade.
Despite this new cautious approach by consumers, the average household still owes around £8000 in various loans, credit cards and other unsecured borrowing. PwC warned consumers who were considering taking advantage of more borrowing opportunities to do so now, as due to current trends, it is increasingly likely that they might find it more difficult to do so in the future, as many of those with a previously excellent history have seen their credit ratings drop due to the financial crisis.
The group was also keen to stress the importance of fair regulation of the consumer credit market – suggesting a cap on interest rates charged by lenders could mean it would become impossible for lenders to give loans to many people, potentially driving them toward point of sale finance, pawnbrokers, or even doorstep loans.