Lenders more relaxed; deny loans to fewer people |
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Sat, 09 Jul 2005 21:40
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Loan providers these days are easier to approach for a mortgage loan, even if you have a poor credit rating/history. Which means: if you have earlier been turned away because you were self-employed or had a history of defaulting on loan obligations, you can now be surer of getting a loan. These findings were made by an independent survey by market analyst Datamonitor.
Going by figures, banks certainly appear to be friendlier to borrowers whose credit rating is poor. Last year, the rate at which banks were lending to such people, grew twice as fast as the standard market lending (lending to people with average or high credit rating). Mortgage loans to people with a poor credit history totalled approximately £41.2bn (9.1 percent more than 2003). Mainstream mortgage loans increased during 2004 at 4.5 percent. People with a poor credit history includes those who declared themselves as self-employed and had inconsistent income.
Besides mainstream mortgage markets such growth was seen also in credit cards which were being offered to people who had a poor credit rating as well as those who did not have any credit history. Datamonitor predicted that the number of credit cards issued to people with a poor credit rating could rise from 9.5 million to 13 million by 2009.
Banks were increasingly more relaxed with their rules in order to be more competitive and operate in the non-standard segment. The strong growth in this market (earlier not even regarded a ‘niche market’) was attracting large financial institutions and mainstream lenders.
Such big players have obscured the difference between the products offered by mainstream lenders and those who catered to this non-traditional sector. There is also an increase in the number of products offered by this industry.
The relaxation of rules has also meant greater acceptance of - what is called ‘credit repair’. People with poor credit ratings or bad histories now had the chance to improve their rating.
Lenders including the new entrants now regularly review their prices within the non-standard mortgage market. There is no denying that all this means good news for the non-standard customer – persons who are self-employed or haven’t had a chance to start a credit history. Clearly, fewer people were being denied mortgage loans and credit cards than before and the number is constantly dropping.
Contrasting with this development, some retail banks said, was an increase in the level of bad debts in recent months, sounding a note of caution to all lenders.
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