Rise in Interest Rates Squeezing Households – PwC

Lucas Gilmore, “Big 4″ observer
January 17, 2011 /

Authors of PwC’s annual Precious Plastic survey have warned that the expected rise in interest rates will drive the number of “under-banked” households to soar higher as lenders will shift “efforts on identifying and tracking the ‘profitable customer’ and saving costs in the back office.”

By 2015, interest rates on credit cards will increase 3 percent, which would mean consumers will have to supply an additional £1,800 annually to sustain payments on credit card interest and loan debt, the report predicted. Accountants PwC pointed to new regulations compelling banks to secure more capital and the continued shortage in liquidity as main drivers of interest rates hike.

They have also warned that further increases in interest rates will force lenders to restrain credit offers to average customers.

Ernst & Young has similar predictions when it told the Bank of England to “hold its nerves” from raising interest rates despite reports of a rise in inflation expected over the early part of 2011.

PwC warned credit card providers that consumers are continually losing confidence on borrowing large loans and open-ended credit cards, favoring smaller ones to reduce debts, as illustrated by the 1.5 million decline in credit card holders last year, the highest since 2003.

A mix of declining demand from consumers and tight lending by credit card providers have driven down the figure, accountants PwC said. Mainstream lenders are continually refocusing on borrowers that have strong previous credit profiles to avoid losing to bad debts, thus a constrained supply of credits to average consumers, they added.


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