Pawnbrokers brace for second credit crunch

Pawnbrokers report Brexit uncertainty and rising interest rates are making it harder to raise finance

Pawnbrokers predict a bumper Christmas trading season as Britain faces an early taste of the next credit crunch, but worry that holiday debts are mounting up.

Gary Wilmott, chief executive of C&C Group, which has more than 200 outlets around the UK, said sales had already exceeded expectations for the last three months, and he was hoping for another bumper Christmas.

Wilmott said pre-Christmas spending was around half the level of a year ago and families had been forced to confront the debt they carried with them “until the blink of an eye”. “When they go away for the weekend they’re carrying the debt.”

Wimott said the chain was competing in tougher conditions on the high street as a “broad spectrum of banks” had pulled out of pawnbroking. “The impact is felt most immediately on the smaller margins of the smaller transactions.”

In its accounts for the year to the end of September, which have just been filed with Companies House, Wilmott said: “However, supply conditions have become more challenging, with domestic banks reducing their appetite to offer pawn loans.”

Debt at high street pawnbrokers reached £3.95bn at the end of August – a 6% increase on a year earlier. C&C’s accounts note this rise in debt could widen to £4.15bn by the end of September 2018.

Cash-strapped consumers already struggle to cope with high household bills. In his gloomy spring budget Philip Hammond announced that fuel duty and income tax would go up in April 2019. Many savers will also find their cash raided in the new personal savings allowance (PSA), which will result in around £300 a year tax relief being taken away. The cash is supposed to help those who struggle to save, but around 20 million savers will be affected.

A poll from charity Personal Finance Society (PFS) found that 84% of savers earning less than £20,000 will be affected by the personal savings allowance, while 81% of those on average earnings will.

PFS director Trevor Greetham said: “The lack of a core savings policy has turned our entire pensions system into an inappropriate income safety net for the low-paid.”

Retail and banks have combined to argue the new PSA should reduce the danger of a new credit crunch, where growing indebtedness becomes too big to refinance.

The PFS said shoppers’ debt problems could be exacerbated by credit cards, loans and mortgages renewing at higher interest rates this Christmas.

“Given the fact that the biggest proportion of £3.95bn in debt at UK pawnbrokers were credit card balances, those low-income earners who don’t benefit from a new tax allowance could feel the pinch as interest rates increase,” Greetham said.

But pawnbrokers insist they will not have a problem getting cash to pay off debt if customers need it. A C&C spokeswoman said: “Our wider remit is to fund consumer credit and provide financing for those in credit hardship, so it is less likely that we will be able to offer loans at the 11.5% currently charged by other lenders on unsecured loans.”

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