The lending and borrowing of money has been one of the most significant cogs in the wheel of global economies for centuries, and it is one of the main ways wealth is generated. As such, the lending sector is an incredibly important part of the wider economy, and can often represent the overall prosperity of a nation. Examining its strength can give a good indication of where the economy may be headed, so here are some further considerations about UK lending as a whole.
UK Households Spending More
The lending sector has recently taken a significant hit with the news that UK households have collectively spent more than their income levels for the first time in 30 years. They have done this through reducing their overall saving levels and taking on more debt, meaning that the wider economy runs the risk of being destabilised in the near future.
With households essentially living beyond their means, they run the risk of contributing towards economic trouble in the future, such as another recession. Many loans may not be paid back, although fairly low interest rates should help to offset overall economic risk.
With households relying more on borrowing, it may well be up to lenders like banks and loan companies to brave the storm and shoulder the cost of lending to more people. As such, it may well be the case that lenders will close their doors to more people, especially those with poor credit histories or a lack of means to pay them back.
Unsecured loans have been rising in popularity, and these usually have much higher interest rates compared to secured loans. This could signal a potential rise in the number of people willing to take on more financial risk, and potentially foreshadow an epidemic of debt problems in the future.
An Unstable Economy?
The newfound reliance on lending for many households could well have implications for the wider economy, especially if it proves to be a continuing trend. With more and more debt being created, much will come down to how well people manage their finances, and whether they can pay back their debts in time.
If the lending sector continues to feel pressure from the rise in demand for loans, and the current economic uncertainty surrounding Brexit continues to throw spanners into the overall economy, then it is likely that there will be a t least some negative effects on the UK’s prosperity.
Ultimately, the lending sector may well be strained over the coming months, as more and more people may feel the pressures of having too much debt. That being said, lenders may well prosper from the increase in people taking out loans and paying the money back with interest, so only time will tell how the lending sector performs in the near future.