Rising use of payday loans may challenge credit cards
PricewaterhouseCoopers (PwC) have suggested that credit cards are facing a ‘midlife crisis’ as many people turn to other forms of borrowing.
A PwC report indicated that in 2011, the total number of credit cards in use in the UK fell by approximately 1 million.
PwC figures also indicated that many UK households had also paid off unsecured debt in 2011, but the average debt was still at £7,900, one of the largest debt averages for any country in the world.
The total amount of credit card borrowing also fell by around 5% and the average credit card debt for UK consumers was now around £1,000. Their figures also reveal that the amount of debt that credit card companies had written off had also fallen.
However, many credit card companies have introduced tighter lending criteria, forcing more people to turn to other forms of borrowing. The PwC report indicated that the use of debit cards increased by 10% and many people were also turning to other forms of borrowing, such as digital payments and payday loans.
PwC suggest that credit card borrowing could potentially be overtaken by payday loans as the mainstream method of borrowing in the UK. Payday loans are short-term, high-cost loans and are traditionally associated with high-risk, low-income borrowers.
Payday lenders have been criticised in the past for the high interest rates they charge. Some lenders also let the loans roll over, resulting in big charges for those who cannot pay the loans back on time.
However, payday loans are attracting more people in addition to those who are unable to borrow from credit card companies or banks.
PwC suggest that the convenience and innovation offered by payday loans are an attractive proposition that credit card companies do not match. Many people are also uncertain about taking on longer term debt in the current economic climate make the limited size and timescale of a payday loan offers an alternative.
Simon Westcott from PwC said: “Mainstream lenders need to be aware that what may have begun as a last resort could be an enduring relationship, as consumers are pleasantly surprised at the convenient and innovative service they receive from these smaller, more agile providers.”
Mr Westcott also went on to suggest that as the payday loan companies continue to grow and become more conventional, they may also begin to introduce credit cards of their own, and move onto longer term loans and possibly even current accounts.
The Ernst & Young Item club who provide assurance, tax, transaction and advisory services, suggested that the growth of the payday loan industry was ‘phenomenal.’
The also backed up the PwC report and argued that more people would continue to turn to payday lending as they fall outside the terms and conditions for borrowing from traditional lenders. Compare private health insurance from all providers. They went on to suggest that banks and credit card companies are also likely to increase their restrictions on borrowing , forcing more and more people to turn to alternative sources of finance.
Care fees is another contentious issue that faces the government and many politicians are lobbying for changes in the way that care home fees are calculated for those who own there own homes.
Countrywide urge government to intervene in housing market
The largest estate agent chain in the UK has warned that young people will not be able to purchase a home if the government does not intervene in the housing market.
Grenville Turner, head of Countrywide, said half of the 18-34 year olds surveyed found the issue of raising cash for a deposit prevented young people from buying a house.
In total, Countrywide surveyed 6,000 people and found that 21% of their sample could not afford to move as they could not afford the deposit.
Mr Turner said today’s young people could become a “nation of renters”, unable to save enough cash to get on the housing ladder. In the survey, less than one-third of people who are currently renting said they were happy with their situation. A different survey by Hometrack said tenants were also finding it hard to afford their rents, and this is likely to have a knock-on effect on the amount they have left over for savings.
Grenville Turner also said that recent figures showed families were moving far less often – once ever 25 years, rather than once every 12 years as was common in the past. Of the 6,000 people surveyed in the Countrywide study, 16% said that high mortgage payments were preventing them from moving house. Another 16% said that the general costs of moving were difficult to manage, citing stamp duty as one component.
Mr Turner’s own company suffered a massive dip in profits at the end of the last decade. They reported profits of £26 million in 2010 compared to £79 million four years earlier.
Mortgage lenders say that affordability is improving, with more people being able to buy a home now than five years ago. The most affordable properties were found to be in Lancashire and Merseyside, according to a Halifax study using government data. However, the company admit that there are serious issues for public sector employees in the south of England.