Turbulence in the Loan Market

December 5th, 2007

Thanks to the credit crunch it is getting harder to have new loans approved in the UK irrespective of customers credit history. Latest research from price comparison website moneysupermarket.com, states that to up 48% of loan applications are now being rejected, an increase of 15% that would have been considered prior to August 2007.

A spokesman for Barclays recently told the Times “We are declining more than 50% of applications. We are constantly reviewing our criteria and have seen a slight increase in the number we are declining.” This contraction of the personal loans market is mirrored by those of credit cards and, of course, mortgages.

Although the downturn is effecting everyone the worst hit are those with a poor credit rating. Since the US crisis over the summer 70% of sub-prime credit products have been taken off the market. Those that are left have adopted a siege mentality, the drawbridge has come up and very few customers are getting in.

There is little short term hope of conditions in the market improving. The governor of the Bank of England said last week that the economic outlook for the UK was ‘uncomfortable.’ With general economic conditions deteriorating and lenders over exposed in many key areas personal loans are not high on their list of priorities.

The economic upheaval is expected to last between 4-6 months, although the bad credit loan market is unlikely to stabilise for two years or more. Since approximately 20% of the UK population now has a poor credit rating this will have a major effect on the loan market for a considerable period of time.

Unfortunately for many their only option if they want a loan in these turbulent times will be to use the lenders still willing to lend but at very high rates of interest. With the cost of borrowing so high almost everyone will be better off putting thoughts of a new car, house extensions or foreign holidays on hold and living within their means for a while.

The good news is that the market will stabilise, and that when it does the interest base rate will be quite low, meaning that borrowing will once again become affordable and easy for almost everyone.

This entry was posted on Wednesday, December 5th, 2007 at 10:57 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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