Chancellor speaks out on lending

by Gill Montia

Story link: Chancellor speaks out on lending

The Chancellor of the Exchequer, Alistair Darling, has spoken publicly about the need to bring an end to an era of free and easy lending by the banks.

Mr Darling believes that such lending has been responsible for a credit boom that went beyond sensible limits and he is calling for a return to ‘good old-fashioned banking’.

In defining this term, the Chancellor has said that banks “need to know who they’re lending to, how much they’re lending and what the risk is”.

The call for a review of lending practices comes amid mounting concern that consumer debt is continuing to increase, causing uncomfortable pressures on household finances.

The Treasury and the Bank of England had already anticipated difficulties for homeowners this autumn, because of the number of fixed-term mortgages coming to an end.

Fixed-fate borrowers in the process of remortaging have to accommodate the five base rate rises since August 2006 and in addition to this, there is now the likelihood that mortgage rates will be forced up by market volatility.

This volatility is largely due to the US sub-prime mortgage crisis, which has created a liquidity shortage in the money markets.

It is, however, also fuelled by concerns that UK consumers have over-extended themselves.