FCA and BoE Economists: Consumer Debt Growth Not a New Subprime Bubble


According to a new research that was conducted by City watchdogs, the fresh wave in consumer lending to record levels is not considered to be a rerun of the subprime borrowing bubble that paralysed the financial system of the world in 2008.

According to a joint article that was published today by economists from the Bank of England and the Financial Conduct Authority (FCA), credit growth is not being driven by the borrowers rated as most prone to default.

Economists Liam Kirwin, Ben Guttman-Kenney, and Sagar Shah wrote: “Credit growth has not been driven by subprime borrowers.”

The rapid expansion of the household debt pile of the United Kingdom, excluding mortgages, observed it surpass the £200bn mark in 2017, with growth rates of over 10 percent over a majority of the previous year, far outstripping the growth of the GDP.

The rise in consumer credit has increased concerns for financial stability, with the own financial policy committee of the Bank of England warning about “pockets of risk” from some forms of consumer lending.

However, data that were collected by the FCA from credit reference agencies indicates that people with low credit scores – who are euphemistically known as subprime borrowers – are not the ones who are responsible for the increase, said the authors of the article.

People that have higher credit scores – who are generally wealthier and less prone to default have rather been responsible for the charge into cheap borrowings, including credit cards with zero percent interest periods.

The economists stated: “Credit growth not being disproportionately driven by subprime borrowers is reassuring. As is the lack of evidence that mortgage lending restrictions are pushing mortgagors towards taking on consumer credit.”

They note, however, that “vulnerabilities remain” with consumers in debt for longer periods compared to what was previously thought.