Is it going to get easier to get credit?

There is little doubt that credit conditions have been getting tighter and tighter in the UK over recent months, and this is mainly due to the global credit crunch, which has affected all financial sectors.

With lenders experiencing difficulties in getting affordable finance on the wholesale money markets to fund their lending operations, the type and number of financial deals available to consumers has been slashed over recent months.

The deals that are still available have often seen their interest rates hiked up, and this has left many consumers unable to get affordable finance of any king, sending consumer confidence plummeting and adversely affecting the economy.

The global credit crunch made its way across the UK last summer, and since then has been wreaking havoc in the financial markets. It has become increasingly difficult to get mortgages, credit cards, loans, even car loans and other forms of credit.

The situation has come to the point where the government has had to intervene, particularly when it comes to the mortgage industry, which has suffered particularly badly during recent months, sending both mortgage lending and the housing market into a slump.

Many are now wondering whether credit conditions will become easier over the coming year as a result of increased liquidity created through cash and intervention from the government.

However, most industry professionals have predicted that things are going to get tougher before they get easier, and most have predicted that any government intervention, such as the £50 billion mortgage rescue plan, will take a while to feed through. In addition to this the recent base rate cuts that have been applied by the Bank of England over recent months have not been applied by lenders in many cases.

Mortgages

The world of mortgages has perhaps suffered more than most industry sectors as a result of the global credit crunch, and lenders have had to really tighten up on their lending criteria. The situation with the mortgage industry became so bad that the government had to intervene and launched a £50 billion mortgage rescue plan that would allow lenders to swap mortgage assets for government bonds.

The government hopes that this will increase confidence levels amongst consumers, encourage them to lend to one another at affordable rates, which should in turn increase liquidity in the mortgage industry.

However, getting mortgage loans will still prove to be difficult in the short to medium term, as the government plan is expected to take some time to take effect, and in the meantime mortgages will continue to be restricted and expensive.

In fact, the Council of Mortgage Lenders recently stated: ‘In the short term the trend of increasing prices and products being removed from the market is not going to be reversed. As and when the banks start lending to each other, the rate for lending will go down and that means that that will start to bring the price down but it is not going to be a dramatic reversal. It is going to be a slow process at best.’

With reference to the rescue plan an official from the Building Societies Association said: “It will not in itself solve the credit crisis, it certainly isn’t going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels, but it should help to underpin confidence. It is vital for the Bank of England to remain very close to what is happening in markets, and it should not hesitate to intervene further and extend the facility if that is what is needed.”

Personal loans

Personal loans were once a very popular form of finances amongst consumers, and offered affordable rates to those with good credit. However, personal loan rates have continued to rise, and in at least one case the personal loan rate from a bank has risen to above the interest rate charged on the lenders’ credit card.

One official pointed out: ‘It’s not only mortgage rates that continue to increase, so too have the rates and monthly repayments on personal loans.’

In fact, access to personal loans at competitive rates has become so limited that many consumers have had to turn to their overdrafts in order to stay afloat, because they either cannot afford or cannot access personal loans in the current financial climate.

Credit cards

There has been mixed feeling about credit cards, and this is because whilst credit condition remain tight and credit card rates and fees remain high, a number of lenders have recently launched some very competitive deals. However, these are only available to those with good credit, and therefore the average consumers who may have experienced credit problems in the past may not be able to get these cards.