Precious Plastic 2008 - Consumer credit in the UK

Tough times ahead with higher cost of borrowing on the cards for consumers and smaller margins for lenders

November 2007

Although British consumers have reduced their borrowing on credit cards, there is an increasing concern that if the cost of mortgages increases, many may use their plastic to make ends meet, according to the latest annual report on consumer credit by PricewaterhouseCoopers LLP.

Precious Plastic 2008 finds that consumer indebtedness has more than doubled since the start of the millennium. People are faced with mounting debts, with the average adult now owing £33,000, compared with £17,000 in 2000.

Precious Plastic 2008 highlights:

• PwC estimates many households, that are currently benefiting from fixed-rate mortgage deals, could see their average monthly mortgage repayment increase by around £140 if they do not re-finance their debt: this will put further pressure on default levels and could have an impact on consumer spending
• PwC believes there could be an increase in personal insolvencies next year as a result of over-borrowing by consumers
• Banks are continuing to take action in response to the rise in consumer debt by tightening their credit acceptance policies. Many consumers will find it increasingly difficult to obtain credit
• New opportunities exist for the banking industry through innovation in the consumer credit market, including ‘green’ credit cards
• PwC predicts one in ten people will regularly use a contactless card by the end of 2008 and there is likely to be five to six million cards in issue by the end of next year
• Credit card net yields after charge-offs are at their lowest levels since the start of the millennium. This “lost profit” amounts to £4 billion for the market as a whole. PwC believe annual fees on cards will become the norm