Credit Crunch Sends Loan Rates Higher
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LONDON (Reuters) – Personal loan rates have increased by up to 4 percent as the credit crunch and rising bad debts take their toll.
At least nine lenders have hiked rates on unsecured personal loans since the start of last week, as lenders respond to volatility in capital markets and higher perceived risk among borrowers.
“With increasing uncertainty in the financial markets, rising levels of bad debt and a year of interest rate rises putting pressure on our disposable incomes, it comes as no surprise to see lenders increasing their lending margins ..,” says Lisa Taylor, an analyst at price comparison service Moneyfacts.co.uk.
Bradford & Bingley (B&B) raised its loan rates by up to 4 percent on Monday, giving a rate of 17.9 percent on loans of between 2,000 and 2,950 pounds.
The Cheshire and Derbyshire building societies lifted theirs by up to 3 percent, also to a maximum of 17.9 percent on small sums borrowed.
Goldfish lifted its loan rates by up to 1 percent from Tuesday, Norwich Union and RAC Financial Services pushed through the same increase a day earlier, while Eskimo Loans increased its rates by 1 percent a week before.
Norwich & Peterborough Building Society raised its rates by up to 0.70 percent last Monday, while Northern Rock — the bank left struggling to stay afloat in the wake of the global credit crunch — has also upped its loan rates, by 0.50 percent.
The increases have added up to 300 pounds to the cost of a 5,000 pound loan taken out over 36 months with B&B, and created a 500 pound gap between the cheapest and most expensive deals, according to Moneyfacts.
The credit squeeze that has sent the cost of money shooting up without the Bank of England lifting a finger has already seen mortgage lenders hike their rates.
Halifax, Britain’s largest lender, and others including Abbey and Standard Life Bank increased some mortgage rates last month as problems in the US housing market spilled into the wider credit market, pushing up the London interbank offered rate — the rate at which banks lend to each other.
Against a difficult mortgage backdrop, HBOS, which owns Halifax, said this week it would no longer set market share targets for net lending.
HBOS — whose one-fifth share of the UK mortgage market is more than double nearest rival, Abbey — has in recent years targeted a 15 to 20 percent share, though its share slumped to 8 percent in the first half of 2007.
Louise Cuming, head of mortgages at price comparison site moneysupermarket.com, said of the move to scrap targets: “This shift by one of the UK’s biggest mortgage lenders could be the start of a more defined period of polarisation, with lenders falling over themselves for some applicants, while declining others or only offering them a very high price.
“Lenders are already tightening their attitude to risk and hiking up rates for the riskier categories of lending.”
