According to the Bank of England, there was an 8.3% increase in some loans given to people. This value is 200% times the value of the year 2008 and is around 130% to 140% of the total GDP. Households have been borrowing large amounts of debts, and this is a worrying situation.
New bank policies have made it easier for ordinary people to get loans. The money lending is readily available to everyone, especially small business, providing them with an opportunity to expand their business. This loan drive surge is referred to as ‘trap of debt-fueled recovery’ that the ordinary people are getting involved in.
There has also been a large increase in the number of car sales over recent times. In the year 2016, 2.63 million new cars were bought by people. This broke the previous record of 2.58 million cars which was set in 2003. The new record is a 6.3% increase than the stats of 2014. The major cause suggested that has increased this loan borrowing is said to be the high-profit rate on loans. The interest rate is also low.
The bank stated that most people lending the money are buy-to-let landlords. The bank also notified the people who borrowed loans, the people expanding buy-to-let, about the position that the bank is put in incase of such a scenario. The position of the bank is made worse in property market downturn situation. The bank also stated that larger businesses could easily provide finance to their business. However, for smaller businesses, the process is slower and more gradual.
It is predicted that increase in buying will lower during 2016. It is because of the new tax law changes that can cause the decrease in buy-to-let business.