Surging consumer lending has already caught the attention of the UK’s central bank. Now a stock-market listed lender which stopped lending ahead of the 2008 financial crisis is also warning the borrowing boom is a worry.

Net consumer lending, which excludes mortgage loans, increased 10.8% in November 2016, according to Bank of England data.

Loans outstanding on products like credit cards and unsecured personal loans hit £192bn out of a total of £1.5 trillion of household debt.

Troubling trend

While most of the UK’s debt is secured against property, chief executive Paul Lynam at Secure Trust Bank (STB) says it is increases in unsecured lending which are the most troubling.

He says the bank will stop making new unsecured consumer loans as rivals rushed into the market offering lower interest rates.

Lynam claims rates are not high enough to protect lenders from the risk customers are unable to repay.

Unsustainable lending

‘Recent data from the Bank of England has revealed that consumers are borrowing more than ever on unsecured personal loans,’ said Lynam following full-year results on 13 January.

Unsecured lending will resume at STB ‘when risk-adjusted yields’ become more attractive, Lynam adds. Secure Trust Bank previously exited the market between 2006 and 2008.

Instead of unsecured personal loans, the bank is focusing on asset-backed lending in vehicle finance and the small and medium-sized business market.

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