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Debt-laden Britons face crunch from rising rates, City watchdog warns 

British families have built up enormous debts in the era of low interest rates and could struggle under the burden as rates start to rise.
Mark Carney wants to raise rates only slowly but even this could cause trouble for borrowers, the Financial Conduct Authority warned.
“While interest rates are expected to remain low, a gradual increase in interest rates could have a detrimental impact on consumers who carry high levels of debt,” the FCA said in its annual Business Plan.
It also means households have little financial buffer because low interest rates mean they have saved too little.
This is a particular hazard as the UK has an ageing population with limited resources to pay for retirement.
“The pronounced fall in real interest rates has reduced savings growth and created concerns that consumers may be unable to meet their expectations of sufficient retirement savings,” the FCA said.
“Additionally, the reduced cost of servicing household debt has created an incentive to borrow, while the cost of building up assets to support retirement income has gone up.”
Consumer credit has been growing at an annual rate of almost 10pc in recent years, a level not seen since the boom years before the financial crisis.
Debt-laden Britons face crunch from rising rates, City watchdog warns 

Andrew Bailey heads the FCA, and said Brexit planning will cost the regulator around ?30m

Credit:
Simon Dawson/Bloomberg
In the mortgage market, first-time buyers in particular have been taking increasingly large loans that are only affordable because of low rates of interest.
The watchdog, headed by Andrew Bailey, is planning to prioritise action on high-cost credit, which is typically offered to low-income, high-risk borrowers.
This means reviewing the total cost of rent-to-buy schemes, including insurance and warranty products that are often added on to already expensive methods of purchase.
The practice of rolling several home-collected loans together is also under the microscope, as the extra convenience can also add to borrowers’ costs.
And the long-term use of overdrafts is getting more scrutiny, as customers often do not appreciate the full costs of their use.

?30m Brexit bill


Meanwhile a major review of the rulebook for bankers has been delayed again because the City watchdog has to focus ?30m of its resources on Brexit.
The FCA has to prioritise giving advice and assistance to the Government on relations with the EU, plans for future free trade deals, and ensuring business between UK and EU finance firms can continue after Brexit.
The watchdog can find ?14m by re-prioritising spending, while it will use ?5m of reserves and raise an extra ?5m in its annual levy on finance firms.
The final ?6m will come from companies it newly regulates, such as consumer credit firms that have only recently come under the FCA’s purview.
“The priorities in this year’s Business Plan reflect the high level of resource we need to dedicate to EU withdrawal, given its impact both on our regulation and on the firms we regulate. This inevitably affects the amount of work we can undertake in other areas,” the regulator said.
“As a result, agreeing our 2018/19 priorities has involved particularly rigorous scrutiny and challenge.”
This includes a delay of plans to digitise company filings, and to look at extending the senior managers’ regime to banks’ legal counsels.
The FCA had already delayed a major review of its Handbook - the overall rulebook for financial industry workers - until 2019, but the transition deal means it expects to work on Brexit for even longer.
One element of this will not be delayed any further, however.
The FCA is looking at giving companies a duty of care over their customers.
It was intended to be part of the overall Handbook review, but will now start with a paper on the topic this summer, to avoid further delays.
The Prudential Regulation Authority also said it was focusing extra resources on Brexit, to allow it to advise the Government and work on finance firms’ plans to operate across the new UK-EU border.
“The foundation of our approach remains the presumption that there will continue to be a high degree of supervisory co-operation between the UK and the EU, and that the openness of our global financial centre benefits both sides,” said the PRA, which is part of the Bank of England.
Its budget is falling by ?13m on the year as previous big projects come to an end.
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