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Borrowing Difficulties 'Likely To Increase'

Sep 5, 2007
The number of people set to be denied credit through mainstream lenders, prompting them to seek bad credit loans, is set to increase in the coming years, it has been suggested.

A report from Datamonitor published today reveals that, while the number of people unable to get credit by traditional means stood at 7.0 million last year, it is set to increase to 8.6 million by 2011.Last year was the first year for some time in which the so-called non-standard population rose, Datamonitor suggests, indicating that financial difficulties experienced by many across the country are starting to be felt more widely in credit markets.

The number of people needing bad credit loans as a result of rejection by the mainstream market had been falling for some time until 2006 due to a strong economic climate alongside high street and mainstream lenders relaxing their criteria when providing loans. Datamonitor suggests that the reasons for the change in national circumstances are tied up with households facing increasing difficulty in meeting financial commitments such as builds and consumables.

The non-standard population is made up of those individuals who have been denied credit by mainstream lenders on a number of occasions. This could be as a result of unemployment, county court judgements (CCJs) a record of bankruptcy or reliance upon income support, among other factors.

During 2006 a number of "bad debt indicators" changed, including an increase in mortgage repossessions, a rise in CCJs and Department of Trade and Industry figures on insolvencies also pointing to affordability issues.

Datamonitor asserts that while such indicators currently remain low, they are harbingers of increased struggles for a number of consumers. As a result both of these indicators and of last year's rise in the number of those needing to pursue credit through special channels, Datamonitor predicts that the number of people being refused credit will increase in the future.

It observes that, while the market is likely to grow for specialist lenders, they must continue to lend responsibly to ensure that borrowers do not find themselves in further financial difficulty. Additionally, the firm points to the sub-prime mortgage market in the US, currently rocking stock markets across the globe, as a lesson to be learnt and a situation to be avoided by lenders in the UK.

Earlier this week, CreditExpert commented on the amount that Brits spend yearly simply on keeping up with the neighbours, observing that the temptation to overspend and end up in financial difficulty can be hard to resist.

Jim Hodgkins, managing director of the firm, remarks: "It's staggering to see how much we're overspending just to keep up with our peers. While it's great to be generous at the bar or on a date, we should be spending because we want to and not because we feel pressured. Spending beyond your means because of peer pressure can result in mounting debts which could lead to a bad credit rating and, unfortunately, if your credit rating is unattractive to lenders, they will be less inclined to offer you credit - which means you could then miss out on the new car or flat you've fallen in love with."

In other news, Standard & Poors recently stated that a slowdown in the housing market could lead to a collapse in the mortgage industry, following in the wake of problems in the US sub-prime market. While problems in the UK are not as severe, the firm observes that a similar pattern of increases in arrears and repossession can be identified.
About the Author
Tom Dawson writes for Essentially Home Loans where visitors can apply for personal loans online, and also focuses on secured loans for UK residents. Visit Today: http://www.essentiallyhomeloans.co.uk
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