The UK economy is going through a challenging period. With destabilising factors, such as Brexit and a rise in interest rates for the first time in a decade, the lending market in particular is an interesting place to be right now. The ongoing change and the fluid nature of influences such as the EU referendum and global political events have created a number of trends in both unsecured and secured loan lending.
The amount of unsecured consumer lending has dropped
According to figures from the Bank of England, the amount of unsecured lending to consumers fell in the first three months of 2018. The drop was significant too, with a fall of almost 40% recorded in the Bank of England statistics. This reduction has been attributed to a significant slow down in the volume of approvals of unsecured credit (e.g, personal loans) by lenders. Successful credit card applications, for example, were down by 26.2%. Other forms of unsecured lending dropped by 13.2%. The reasons behind the trend are thought to be a lack of appetite for risk on behalf of unsecured lenders. In reality this translates to lenders who are less willing to approve applications where there is any doubt at all over whether a borrower might potentially be able to repay.
Unsecured lenders are becoming more cautious
Whether as a result of a slower economy or a weaker consumer environment, lenders are not as willing as they once were to agree to credit for consumers where there might be some risk. It’s also thought that unsecured lenders – in particular, credit card lenders – are more cautious in the wake of the Financial Conduct Authority’s voiced concerns about credit card debt.
Unsecured consumer lending is the lowest since the recession
In terms of whether this trend is likely to continue it’s worth noting that the availability of unsecured loans to consumers has dropped by the highest rate since the Bank of England’s records began in 2007. Unsecured lending rates have fallen more quickly than at any point since the recession, and this is part of a trend that was also evidenced, and accelerating, back in 2017.
Rates of secured lending are much more stable
According to the Bank of England quarterly credit conditions survey the drop in unsecured lending rates is not being reflected in the secured loans lending sector. In the first quarter of 2018, those lenders that participated in the Bank of England’s survey reported unchanged secured loan availability. Secured credit is lending, such as mortgages, where an asset – such as a property – is provided as security for a loan. Lenders have less risk to bear where there is an asset, which could explain why the secured lending sector has not seen the same change as in unsecured lending.
Default rates for secured lending are lower too
This is a trend that is expected to continue with a reduced number of defaults on lending right across the secured loans sector.
Can you still borrow under these conditions?
Yes. Whether you’re looking for secured or unsecured borrowing, there are still applications being approved by UK lenders. If you’re planning on making an application for either of these types of finance then there are a number of ways in which you can prepare to give yourself the best possible chance of success.
Check your credit report. Amend any mistakes, ensure you’re on the electoral roll and make sure your personal information (such as addresses) is up to date. If your credit report is connected to that of another person you once shared a credit account with, but now no longer see, then ask for a notice of disassociation so that their credit behaviour won’t affect your credit score.
Pay off other debts first. One of the key factors that lenders will bear in mind is whether a potential borrower already has an unmanageable level of debt. Reducing, or paying off, any existing debt will help to improve your credit score and make you a more attractive lending prospect.
Make sure any borrowing you’re applying for is affordable. Affordability is a key criteria in the lending sector today, whether secured or unsecured. When you make an application for a loan or mortgage, calculate how you’re going to handle the repayments and whether you’ll still be able to ensure that your other expenses are covered.
Apply for the right loan and to the right lender. Different lenders have different requirements when it comes to approving an application or not. Choosing the right loan product with the lender best suited to you as a borrower can make all the difference.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley