A credit crunch is brewing and when it happens, the UK is going to get hurt. That is the message emerging from senior executives in the financial services industry, who do not think Britain has changed that much since the 2008 credit disaster and the devastating crash that followed. Three developments lie at the heart of this disturbing analysis: spectacular growth in the sale of second mortgages, car loans and credit cards.

Second mortgages are widely seen as a signal of consumers taking on risky levels of debt that leave them vulnerable to a downturn in the economy.

It was the same before the last banking crash. Tens of thousands of households, many of them struggling to pay monthly mortgage payments, used second mortgages to bypass borrowing limits set by their mortgage lender.

The latest industry figures show the number of people opting to saddle themselves with a second mortgage leapt 22% in March to its highest level since 2008.

Car loans are already on the regulator’s radar. Like second mortgages, they are considered secured credit on the basis that lenders have a claim against an asset when borrowers can no longer pay monthly instalments. But cars depreciate from the moment they are bought, so they rank low down the scale of secure credit. And loans have turned in recent years into leases that have customers renewing contracts every three years, keeping them in effect permanently hooked.

The main consumer regulator for the financial services industry, the Financial Conduct Authority, is reviewing the market for car leasing, which now accounts for more than 90% of car sales, to check for mis-selling to poorer households who will be vulnerable to default.

The Bank of England is also on the case. More importantly, it is also looking at the big picture and what happens if unemployment suddenly rises and a large number of households default on payments.

Officials at the Bank have a growing list of concerns. Not only is there the second mortgage problem and the number of car loans: figures show consumer spending on unsecured credit has also rocketed in the last year. In March alone, the amount UK consumers owed on loans and cards grew by £1.9bn, the highest figure in 11 years.

Households are known to have increased their reliance on short-term unsecured loans to buy cars and furniture, and to kit out new kitchens. Some use them to maintain their lifestyle in the face of a decade of flat wages. Unfortunately, another group use credit to pay the monthly rent.

Shelter, the homelessness charity, says one in three renters – around half a million people – on low incomes are having to borrow money to pay the rent. It said the borrowing is often from family and friends, but also on credit cards and through loans.

The Bank has warned about consumer credit and has attempted to allay fears that the credit industry is out of control with a review to consider possible restrictions.

Talk to financial services industry executives, though, and you get a hollow laugh. Regulators are compromised by the need to keep credit flowing. Why? Because credit has kept the economy in fourth gear for the last two year. Step on the credit brake and the economy will inevitably slow.

A sign of regulators’ weakness can be found in the relentless teaser interest rates and interest-free periods that lenders use to win customers.

Ferocious competition among lenders – encouraged in the name of free-market efficiency – has resulted in interest-free periods on credit cards that last more than three years.

The financial advice charity StepChange says 8.8 million people are showing signs of financial difficulty and risk falling into serious hardship.

With the regulators afraid to “pull the punch bowl away in the middle of the party”, as former Bank governor Lord King put it as he surveyed the wreckage caused by the 2008 crash, those at risk must fear another credit crunch looming into view.

RBS and LLoyds – different, and yet sharing so much



Try as they might, the UK’s two big high street lenders cannot put the financial crisis behind them. Last week, when Lloyds Banking Group was congratulating itself over its return to the private sector, it was still being haunted by the fraud perpetrated at the Reading branch of HBOS, the hotshot lender it rescued in 2008. To add to the pressure, Noel Edmonds, the TV celebrity, is leading the campaign for compensation for the victims of the fraud which took place in the run-up to the financial crisis.

This week, Royal Bank of Scotland will be transported back to those calamitous days of 2008. A high court judge will begin hearing a claim for compensation from investors who backed a £12bn cash call by RBS in April 2008 – only for the Edinburgh-based institution to be bailed out by taxpayers six months later.

As a result of the lawsuit, disgraced former RBS boss Fred Goodwin is scheduled to give evidence to the court, along with former boardroom colleagues, including Sir Tom McKillop. Unless RBS can clinch a last-minute settlement with the remaining shareholders – some 87% of them have already agreed to a deal – the case will open on Monday. It will, as the current RBS chief executive Ross McEwan put it, “take the organisation back to 2008”.

As it is, McEwan is still grappling with problems that date back a decade: the multibillion-pound penalty from the US authorities over the mis-selling of mortgage bonds, and disposal of 300 branches demanded by the EU as punishment for its bailout. Until these are sorted, there is little chance of the government selling off its RBS shareholding of more than 70% – a constant reminder of the 2008 meltdown.

But while this appears to set RBS apart from a Lloyds now freed from taxpayer support, the two banks’ fortunes are more closely tied than ever. In their efforts to throw off the 2008 crisis, they have abandoned their international ambitions and focused on the UK – just at a time when Brexit is threatening the economy.

Got a Basquiat in the loft?

Beauty is in the eye of the beholder and when the beholder is a billionaire, it commands a hell of a price. Japanese fashion mogul Yusaku Maezawa has splashed $110.5m on a painting by Jean-Michel Basquiat just a year after spending $57m on another of the artist’s works.

These sums paint a clearer picture of Maezawa’s personal taste than they do of the state of the art market, which has cooled since the heady days of 2015. That year saw two works, by Willem de Kooning and Paul Gaugin, smash records by hitting the $300m mark. Since then, there has been nothing to trouble the top 10 biggest sales. But if there’s one thing the super-rich enjoy more, it’s outdoing each other in the extravagance stakes.

Now might be the time to explore the attic for those long-lost masterpieces. Any of us could be just a rare Rothko away from early retirement.