Could consumer confidence affect lenders?
Consumer confidence is important to the economy. It is the driving force behind the public’s willingness to spend money, and as such, businesses rely on confident consumers to keep them afloat.
Consumer confidence is a difficult thing to measure, but the latest Consumer Confidence Index (CCI) from Nationwide Building Society, which is based on a survey of consumer opinion, rates consumer confidence at its lowest in at least four years (the index did not exist before 2004).
The evidence is there: budget supermarkets are boasting their highest profits in years, sales of new cars have fallen 21% in a year, and more established High Street chains such as John Lewis and BHS have announced significant falls in profits. It would seem that consumers are becoming increasingly eager to save money where possible.
Consumer confidence and loan availabity
Traditionally, consumer confidence has primarily been a concern for providers of consumer goods and services. Banks and building societies, meanwhile, can sometimes benefit from reduced consumer confidence: when customers do not spend their money, it stays in their bank accounts, which provides funds for financial institutions to do business with. It also encourages taking out loans to finance more expensive purchases, which earns the lender interest.
However, with the uncertainty surrounding the financial sector at the moment, this situation could change. With a number of banks merging and others reporting large falls in profits, the old cliché of keeping savings under a mattress might not be such an exaggeration.
However, a spokesperson for Think Money said that savings are still very important – not only for financial security, but for the good of their lenders too. “Consumer confidence is important to lenders, because they too rely on continuous business,” she said. “If lots of customers withdraw their savings in a short period of time, the banks could be left with very little money to do anything with, meaning they would have little money left to fund loans and other forms of credit. In a worst-case scenario, they could even fail.
“Our advice to consumers is not to panic and to try to carry on as normal. Take confidence from the fact that lenders are still offering loans to customers, which they simply wouldn’t do if the money wasn’t there.
“The Government’s £50bn rescue plan, combined with the recent half-point base rate drop, will only serve to improve lenders’ ability to offer loans – it may just take a little longer to find the right deal.”
Free Guest post by loan and mortgage specialists www.ThinkMoney.com
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