Economic balance requires several conditions, simultaneous synched and sustainable, by design. But even with deep analysis and exhaustive planning, the UK economy still generates surprises, catching even the most astute observers off guard. In particular, consumer behavior is often hard to predict, proving inconsistent and subject to unanticipated trends. Add a personal financial component, and the ability to foresee economic conditions with a high degree of accuracy becomes even more tenuous.
As economic conditions continue to evolve, the robust run of consumer spending seen in recent years has surprised some observers. But a look at the driving forces sparking consumer credit growth reveals some of the finance factors responsible for steady spending.
Climbing Consumer Credit
Consumer credit has been climbing since 2012. By the Bank of England’s measure, which considers new credit and the amount repaid on existing credit; consumer net lending was up more than 35 per cent in 2016, compared to 2012 levels. The growth can’t be attributed to a single spending sector, though certain segments account for big chunks of the gain.
In recent years, dealer finance for cars stands out as one of the biggest drivers pushing consumer credit figures upwards. But other forms of credit have also experienced growth, including personal loans, credit cards, and home credit.
Increased competition in credit markets has made it easier for some Britons to access loans and other financing. Even bad credit applicants can select from several loan providers, striking deals for short-term payday finance. And credit card companies have put forth aggressive finance programs, in order to lure new business, with attractive promotions. Interest free grace periods on balance transfers, for example, have fueled moves by consumers, contributing to the expansion of consumer credit, since 2016.
Car Finance Boosts Credit Figures
Personal contract purchase and hire purchase enable UK car buyers to make monthly instalment payments, rather than giving dealerships a lump sum. As these attractive finance offers have become more popular with UK car buyers, the increased number of motor finance deals has given consumer credit growth a boost.
According to Finance and Leasing Association data, it is believed that between 2012 and 2016, dealership car finance may account for as much as 60 per cent of the total net growth seen in consumer credit trends. It is important to recognise that strong growth in car sales itself buoyed growth, which has been further reinforced by easier access to credit for car consumers. It is thought a slow-down in the car market, as it matures, will result in a corresponding lag in consumer credit growth.
Other Types of Lending Also on the Rise
In addition to strong performance in car finance and card credit markets, various financial products have moved in the same direction. In fact, innovation within the credit industry is partially responsible for the uptick. Personal loans, payday loans, second charge mortgages, and home credit have experienced growth, contributing to the overall net gain. These flexible finance options have made it easier for credit consumers to borrow the money they need. And favorable interest rates in personal lending have made loans less costly, prompting credit consumers to take advantage of conditions.
The early part of the year saw remortgages reach a nine-year high. First time buyers and movers were also active, showing growth, compared to the same period last year. Nearly 50,000 homeowner remortgages were completed in January 2018, flirting with a mark that hasn’t been reached since 2008, before global markets turned south. Mover mortgages, numbering 25,000, were also up over last year’s January figures, showing a 6.4 per cent rise, compared to 2017.
Car finance and other credit use have helped buoy UK economic performance, but household credit represents a relatively small piece of total consumer spending. Credit growth alone is unlikely to dramatically change the economic landscape. While it’s clear easier credit conditions have helped consumers bring higher spending levels to the overall economy, personal factors have also played a prominent role, driving consumer credit decisions.