Lenders and borrowers cautious of credit cards

Lenders and borrowers alike are becoming cautious of credit cards in the wake of the global economic downturn, one expert has said.

According to the Building Societies Association (BSA), there is now a more tentative approach to borrowing on credit cards as consumers are afraid of a downturn in their future finances rendering them unable to make repayments.

The BSA's comments follow statistics published by the Bank of England in May, which revealed that the increase in total net lending to individuals in March was lower than in February.

The twelve-month growth rate continued to fall, by 0.4 percentage points to 2.2 per cent, and the three-month annualised growth rate fell by 0.3 percentage points to one per cent

However, net credit card lending increased by £0.3 billion and net other loans and advances fell by £0.1 billion but the annual growth rate of consumer credit continued to fall, to 3.2 per cent.

Adrian Coles, director-general of the BSA, said: "I think both sides of the transaction are changing their views.

"On the consumer side there is more caution; 'What happens if I lose my job? Perhaps I'd better not buy yet, perhaps I should re-mortgage, or to look more carefully at my outgoings or to consider whether I can buy now with the savings I have got rather than go into debt or buy something cheaper or not buy at all.'"

Credit Action revealed last month that 323 people were declared insolvent or bankrupt on May 1st.

This is estimated to increase to 435 people a day throughout 2009 or one person becoming bankrupt or entering into an Individual Voluntary Arrangement every 3.3 minutes.

Furthermore, the average house has decreased in value by £92 every day during the last 12 months and 33,600 applications for credit have been turned down every day during the past six months.

Mr Coles said: "On the lending side clearly some loans were made by some institutions to people who can't now repay them and those loans shouldn't have been made. There is caution all around.

"One of the speakers here at the conference referred to it as a 'hangover' and that is absolutely right. When you have got a hangover you say 'never again I don't want another drink' and that is where we are at the moment."

© Adfero Ltd