Mark Carney's Warning

Mark Carney’s Warning: We Need a New Zeitgeist of Affordability

Mark Carney warned this week that Britain could be heading for another economic crash as households over extend on consumer credit. It seems, as a nation, we have short memories.

Over the last 12 months families have seriously overindulged on car finance and credit cards, lulled into a false sense of security by record low mortgages and credit card rates. There seems to be a widespread and unnervingly relaxed attitude to credit, despite us being just 10 short years on from the 2007 financial crisis.

A Warning

Mark Carney’s warning should make us all sit up rigid and take stock. He’s the Governor of the Bank of England, and that should be enough. But he’s actually more than that. In his role as Chairman of the G20’s Financial Stability Board (FSB), Mark Carney is also responsible for promoting global financial stability. The FSB brings together senior policy makers from ministries of finance, central banks and supervisory and regulatory authorities, for the G20 countries, as well us the key financial centres of Hong Kong, Singapore, Spain and Switzerland. That means, he has all the main players who set financial stability policies across different sectors of the international financial system around one, very big, table. So, if Mark Carney is worried about financial stability, this should be sounding alarm bells for family budgeting and banking strategy at every level.

The warning comes as a heads up, prior to the publication next month of a consumer credit market report by the Prudential Regularly Authority and the Financial Conduct Authority. Lenders have already been ordered to increase their reserves and borrowers will be required to pass stricter credit stress tests before any loan can be agreed.

Not a Moment Too Soon

This is timely news as people are already beginning to suffer.

Joanna Elson OBE, chief executive of the Money Advice Trust was quoted this week in The Express saying “We have already seen an eight percent rise in the number of people helped by National Debtline so far this year, and we expect demand for debt advice to continue to increase.”

We cannot let the human misery of the 2007 financial tsunami swamp us ever again. We all have to learn to buy what we can afford and not what we want. And lenders have to be responsible partners with consumers, promoting a new zeitgeist of affordability.

What Can We Do?

Castlight Financial’s Affordability Passport®, already adopted by some of the UK’s banks, is perfectly placed to provide a tool for banks to assess risk and for consumers to work out to the last decimal point, what they can actually afford, given their family’s financial commitments. Much more sophisticated than existing credit stress tests, the Affordability Passport® is a digital resource shared between the borrower and the lender – allowing both parties to have an informed understanding, across 260 categories exactly where the customer’s money is going each month. If we could just encourage every lender and every borrower in the country to use the Affordability Passport®, Mark Carney might just sleep more easily at night.