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Unlike previous downturns, the lending environment is markedly different. A whole raft of consumer safeguarding regulation has been enacted, the latest being Consumer Duty. "A whole raft of consumer safeguarding regulation has been enacted, the latest being Consumer Duty." Many simply will not be able to afford to borrow and will fail the more rigorous affordability assessments. They are already significantly indebted: UK con - sumers owed £1,805.7 billion at the end of June 2022, up by £62.5 billion from £1,743.2 billion at the end of June 2021.
That is an extra £1,181.21 per UK adult over the year. The average total debt per household, including mortgages, was £64,970. What’s more, credit card spending seems to be taking off. We can’t forget that regulation in the wake of the changing economic land- scape and looming defaults will mean lenders’ risk appetite may well have changed. Providers might undertake a ‘flight to quality’, especially given the negative cost associated with ‘mis-selling’. The last resort option of defaulting on existing finance may well become the only option for a significantly proportion of lower-income households, despite the negative consequences in terms of credit profile and future borrowing prospects.
So far there is little sign of this hap- pening, with consumer debt write-offs and repossessions not significantly changed on previous years, but with mortgage rates now rising on the back of other inflation, it may not be long before we see the last of the four options rise steeply. The extent to which this will happen is going to depend largely on the success of the energy ‘price freeze’ and overall government efforts to smooth the cost- of-living hike over the two-year cycle that the Bank of England is predicting. Only time will tell how well equipped households are to weather the storm, and if they will still be standing on the other side.
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