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New Year Rate Drop 'Could Make Loans Process Easier'

Nov 26, 2007
Consumers looking for bad credit loans due to their unconventional previous borrowing history may find the process gets easier in 2008, according to comments from the Council of Mortgage Lenders (CML).

Some consumers seeking bad credit secured loans in recent months may have been confronted by a number of obstacles due to the impact of the credit crunch, which has seen many lenders reluctant to lend to certain individuals. The CML's press officer, Sarah Robson, has noted that the increase in the number of application rejections from adverse credit lenders is due to a tightening of criteria from such organisations, looking to cover themselves from being too badly affected by the credit crunch.

Kensington Mortgages is a prime example of the current situation for bad credit lenders and highlights the issues facing those seeking bad credit loans or adverse credit. The specialist mortgage lender today withdrew from the sub-prime mortgage market, with the lack of interest in adverse credit from investors during this time of crunch the driving force behind the decision.

"Tough times call for tough decisions. Demand from investors for adverse credit or high loan-to-value portfolios shows no sign of returning in the next few months, so we have taken the decision to put our adverse range on ice and revamp our prime range until the investor market returns," Kensington's chief executive Alison Hutchinson said.

Despite this move the CML has suggested that things could improve for bad credit secured loan seekers in 2008. With the base rate of interest, as determined by the Bank of England's monetary policy committee (MPC), expected to fall below the current level of 5.75 per cent, the economic situation for such borrowers could soon lighten.

Ms Robson said: "The general expectation at the moment is that there will be a reduction in interest rates next year. That will ease the pressure on some borrowers ... It does give some borrowers hope. Our October 2008 housing market forecast was for base rates to fall to five per cent by mid 2008." The MPC has, however, now held the base rate at 5.75 per cent for four consecutive months, following the rise from 5.5 per cent in July.

According to the CML, once someone with an adverse credit history obtains a bad credit loan, regular repayments will allow them to repair their credit or create a history where there has previously been a lack of credit information. However, Ms Robson added that only by keeping up with repayments throughout the length of the borrowing contract can those with bad credit begin to repair their rating.

In September, the Consumer Credit Counselling Service (CCCS) advised anyone with a credit history problem who has been turned down for a loan to assess the reasons that they have been unsuccessful in their application. James Ketchell, spokesperson for the CCCS, said that the applicant may have been unsuccessful as they could not have afforded the repayments in the lender's eyes and that perhaps they need to reassess their financial position.
About the Author
Steve Smith writes for 1 Stop Finance Shop. A one stop shop for all your loan requirements, from payday loans, to secured personal homeowner loans, and UK tenant loans.
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