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Associate Article

Borrowers facing bleaker prospects of credit

Recent judders on the financial markets have not made it a great time for borrowers. Even though the Bank of England’s base rate has remained fixed at 5.75 per cent since July after previous frequent rises, the cost of borrowing has continued to rise.

In November, Standard Life raised mortgage rates despite the Bank of England leaving interest rates unchanged. The company’s standard variable rate mortgage rose by 0.15 per cent to a total of 7.46 per cent on the 12th. Standard variable rates (SVRs) can be changed by lenders without any differences to the Bank of England rates. In contrast, tracker mortgages cannot be raised until the Bank of England does the same. The problem is that many customers on tracker mortgages are due to switch to SVRs when their current tracker deal ends, as will many customers with fixed rate mortgages. A recent report by accountancy firm PWC has noted that many households are currently benefiting from fixed rate and tracker mortgage deals, but could see their average monthly mortgage repayment increase by around £140 if they do not re-finance their debt when their deals expire next year.

While gross mortgage lending was £32.4 billion in October, a 6 per cent rise on the previous month, the actual number of mortgages lent had a sharp down turn of 17 per cent on September, while it was as much as 37 per cent down on October 2006. Such a pattern suggests that first time buyers, who normally go for cheaper purchases, are having a tougher time getting onto the ladder. Many surveyors have noted that enquiries from new buyers are continuing to fall, while lenders have calculated that first time buyers have been stretching themselves to record levels to take on a mortgage.

It’s not just mortgages that banks are more reluctant to lend now either; other types of credit are becoming harder to come by. In November the number of UK unsecured loan providers fell by ten per cent, and in a similar fashion to the mortgage market the average interest rate rose 0.65 per cent from 9.11 per cent to 9.76 per cent. It seems certain then that consumers are beginning to feel the credit crunch, with Uswitch finding that 38 per cent of people who had applied for a new credit card in the past three months were turned down, while 19 per cent had applications for a new personal loan rejected.

Anne Robinson, director of consumer policy at Uswitch announced, ‘the banks are being forced to write-off vast sums and, as a result, they are tightening their lending belts…This means that credit will become both harder for consumers to get and more expensive.’

With the full extent of the credit crunch not yet been revealed or indeed even fully known by banks, you can expect credit to be more difficult to obtain the further we go on into next year. It might be a good idea to find credit now if you need to consolidate your debts, especially in the run up to Christmas and the traditional financial hangover in January. ASDA Finance are currently offering a 0% credit card that could help with Christmas debt consolidation by giving you in store points for balance transfers, while it also has 0 per cent on purchases for three months. ASDA Finance also offers unsecured loans with a typical APR of 6.9%. For further financial advice, including comparison tables for loans and mortgages, head to beatthatquote.com.





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