In recent years, an environment of low interest rates, low unemployment and growing acceptance of individual debt in the UK has led to British citizens having the highest level of personal debt in Europe. However, there are signs that this boom may be turning to bust.
The CCCS charity has reported that while the level of unsecured debt for its clients starting a debt management plan in Q4 2004 was GBP26,630; a year later this had risen by 10.5% to GBP29,400. This increase was higher than expected, but corresponds with the recent reporting period of the banks, where bad debt was shown to be an increasing problem and was hitting bank profits hard.
HBOS's impaired loans increased to 2.37% of customer advances, up from 2.03% last year. RBS increased its bad debt provision by 7% in 2005. Barclays set aside a record GBP1 billion for bad debt and Lloyds TSB has increased its provision for bad debts from GBP100 million last year to GBP150 million. Meanwhile, agencies such as the CCCS have been reporting rising demand for debt counseling.
Lenders are now becoming more cautious when it comes to large scale exposure to arrears and defaults. Indeed, Barclaycard is now thought to be turning away half of all applicants and has reduced many customers' credit limits. Meanwhile, many lenders have focused on cross-selling to existing customers rather than taking risks with new and unproven clientele.
The growing problem of bad debt means that all consumer credit providers should review existing lending models and tactics for customer acquisition. However while more cautious, lenders still think of the bad debt situation as being under control. So the level of bad debt can be expected to keep on rising in the near future and debt support agencies can expect increasing numbers of clients on their books.