Popularity Trends in Borrowing

The Money Charity of the U.K. has reported that the country has seen the largest increase in personal loan applications and overdraft approvals since the end of the recession. According to their report, the Bank of England has stated the total personal loans of the British public to be at an all- time high of around £1.5 billion by the end of the year 2016. This includes all types of personal borrowing means like credit cards, personal loans and short- term loans. This recent surge in borrowing has been forecasted by financial experts for the past few years, provided the economy continued to expand at the current pace.

Although taking out loans has increased significantly recently, there are certain modes of borrowing that are appealing more than others to the consumers. This article will attempt to touch the salient features of each type of lending and the trends that are being experienced by them.

Mortgages

As a direct result of the government’s Help to Buy scheme, the real estate business has been booming in the U.K. This scheme offers home buyers the incentive to climb onto the property ladder by paying only a 5% deposit on the house. A number of additional advantages of this scheme have led the public to jump to the opportunity and take out mortgages. This has led to a massive 150,000 home buyers to take out mortgages using this scheme in just under three years of it launch.

According to the latest data published by Council of Mortgage Lenders (CML), their year on year lending for mortgages had increased by more than 15 per cent. This is due to a combination of factors, according to another mortgage lending company. The primary one being the Help to Buy scheme paving the way for buyers to purchase their home. The second being the historically low mortgage interest rates, which are forecasted to remain at their current levels for the foreseeable future.

Personal Loans

The Money Charity revealed that the total consumer credit lending in the country has continued to increase for the past one and a half years. With fixed interest rates, personal loans can be budgeted very effectively and have a lower default rate than some other types of loans. The amount that a borrower can lend is generally higher than that of credit cards. It is also the most popular means to take out medium sized loans in the country. With an annual growth reported at about 8.5 per cent, borrowers are seeing this as an more viable source of money to finance their needs.

Credit Cards

The number of credit card usage has increased by about 3 per cent 2016 since the previous year, reported the bank of England in their annual financial report. The increase does not depict the frequency of credit card usage in more areas where customers were previously using their debit cards and cash on. One such area is the installation of contactless payment options on the London Underground. This has resulted in a total contactless usage of nearly 11 per cent compared to the year before.

The total outstanding debt on credit cards has also decreased by nearly £8 billion compared to the same period before the recession. This is indicative that even though there has been a mild increase in the usage of credit cards, borrowers have maintained their ability to repay their debts. According to the UK Card Association, the total number for people who are regularly repaying all their dues off on their credit cards every moth has consistently been over 82 per cent.
This encouraging trend has been attributed to improved and streamlined finance approval processes and better mechanism in place to gauge the ability of a borrower to repay their loans.

Payday Lenders

Despite all the misinformation regarding this type of lending, Pay- day lending, or short- term lending is on the rise in Britain. This type of borrowing is usually availed in order to pay for expenses and sudden, unexpected costs.

The High Cost Short Term Credit (HCSTC), or Pay- day loans have recently undergone a number of regulatory legislature in order to ensure the public financial safety. Therefore, it is becoming easier for borrowers to understand the associated risks involved with taking out a short- term loans. The higher interest rate is indicative of the high risk the company has to face while approving loans. Borrowers also understand when to use such loans and how to use the financing from it.

As a result, the Citizen Advice Service has reported a drastic 86 per cent decrease since 2013, in the number of borrowers who sought financial help regarding their pay- day loans. In light of the new regulations that require the lender to advise the borrower about the risks involved in taking out a short- term loan, the number of people seeking advice about such finances has decreased by 45 per cent. All this decrease in help sought by borrowers has been met by an increase of 3.5 per cent of Pay- day borrowers.

How to Improve Approval Ratings for Loans

Lending in the U.K. has increased significantly and steadily for the past few years. The government has also streamlines several legislatures with regards to providing loans to customers. In turn, an increasingly higher number of people are borrowing to spend on expenses like entertainment and food stuffs. Apart from private loans, businesses have also ramped up their borrowing from a number of lending sources in order to not only start or run their enterprises, but to expand. According to a Bank of England report, this increase in spending and lending has proven to be a shot in the arm for the national economy. However, even though lending is currently at an all- time high, there are more efficient controls in place to ensure the right people are approved for loans. This includes borrowers who are capable and willing to repay what they lent. Although occasionally, it becomes hard to take out a loan in the first place due to a borrower’s poor financial history, irrespective of how well they might be doing currently.

This does not spell the end of the line for borrowers in their search for a loan as there are certain pathways that can be availed in order to make sure that they have done everything possible to prepare for their application.

Enhancing the Strength of a Loan Application

By providing all the relevant information along with evidence, a loan application process would be fairly straight forward. Conversely, leaving out sections of the financial past, omitting obligations or providing false answers to the queries related to the loan could mean the application is rejected. When a credit application is rejected, it would show up on the credit history of the borrower, and could act as a deterrence for future potential lenders.

Another anomaly that is usually overlooked is the interaction between the borrower and their financial advisor for the application. All loan applications are processed by computer algorithms, however, sometimes these prove to be inflexible and might reject an application based on the paperwork. In such cases, communicating why the borrower might feel like that was an unfair decision could clear the air between the advisor and them, resulting in an application approval.

Ensuring that the Borrower’s Finances are in Order

When taking out a loan via Emu Payday Loans, the bank would predict the risk assessment for lending to the owner. By maintaining all the business records and finances, it would help the bank understand the risk in approving the loan.

The importance of proper book keeping is often overlooked, especially in small businesses. This has a detrimental effect when applying for banks loans as the bank would need to know if it’s safe to provide the borrower with their money.

This also applies for personal loans as maintaining a record of outgoings and incomings would allow the bank to make the appropriate calculations necessary in order to determine whether the borrower would be able to maintain their premium payments.

Keep Business Finances Separate from Personal Finances

As the owner of a small business, it might be hard to keep the finances separated, especially during the beginning of operating the trade. Additionally, lenders would assess both the owner’s and the businesses’ economic performance to gauge the loan application. This is not to cement the notion that both the business and the owner’s personal finances are one entity, but to establish a relevant link between them.

A financial charity company explains that since a small business would depend upon the finances directly available to the owner, it is also possible that the owner might spend too much on the business and fall into a personal financial crunch. To seek economic salvation, the owner might then try to take out a loan to stabilise both financial aspects. This would cause uncertainty for any lender as they wouldn’t want to approve a business loan for a small company which would instead be used for home bills and groceries. This would muddle the estimate the bank would have made from the business regarding repayments of the loan.

Increasing Credit Score

The credit score or credit rating is a record of how well a borrower has managed their loans in the past. It is also indicative of any payments made like bills and other dues. There are other factors that also influence the credit score of a person, and it affects the ability to take various types of loans. Therefore, it is essential to maintain a healthy credit score before applying for a loan as it would influence the interest rate if approved.

By signing onto the electoral register and using a credit-builder prepaid card, a borrower can greatly enhance their credit score, bringing down their interest rate on a loan and increasing the chance of the application approval.

Mortgage Lending Dynamics in the U.K.

The Money Charity has reported that the British real estate market would be seeing a slow- down in the coming years due to the benefits of the Help to Buy scheme being cancelled out, or reduced by rising house prices. The Banks of England has, however, painted a positive outlook for the sector and said that mortgage lending is at the highest levels ever and the trend would continue unperturbed. This article would examine the lending dynamics as the real estate market threatens to reach its plateau.

Rising Personal Financial Burden

A market analyst from a leading mortgage providing company based in London has explained that if there is a slowdown in the market, it would likely be caused by affordability issues, rather than a lack of interest with the borrowers. This point can be emphasised by the rising prices of houses as a result of increasing demand for real estate ownership.

A financial advisor based in Manchester is of the opinion that the steep prices of houses have started to put off new applicants for taking out mortgages. According to recent data, the average price of a house in the U.K. is now more than £290,000. The largest increase in housing prices have been witnessed in London with the average property value shooting up by 21per cent in the past few years.

This has led to the public calling for improvements to be made in the government’s Help to Buy scheme to consider the unique financial atmosphere of London. As a result, the government has mended some of the criteria for their assistance to include special clauses for properties located in the London area.

Originally, after securing the five per cent deposit from their own means, a loan from the government can be secured at 20 per cent of the total property value, which leaves the remaining 75 per cent to be borrowed as the mortgage from a lender. However, for buying London properties, the government is offering a contribution loan of 40 per cent of the property value to leave the rest of 55 per cent to be mortgaged.

The loan offered by the government has a no interest time period of five years, after which the borrower is charged a fee of 1.75 per cent of the loan’s total value, which will be increased every year at one per cent above the inflation rate.

In spite of these incentives offered by the government, the public outlook for owning a house seemed grim according to a recent survey. Respondents to the survey cited difficulty in securing the deposit and steeply increasing house prices to be the primary barriers to owing a house.

First Time Buyers

According to the Office of National Statistics, there was a slight rise in the number of first time buyers during the year of 2026. With nearly 21 per cent of all home purchases being made by first time buyers, it is a larger portion of home owners as compared to the previous decades. However, this rise is not consistent with the post- recession trend. After the economic recession ended, the country witnessed the largest dip in new home owners for decades. Some economists have suggested that the trend of new home owners entering the market and taking out mortgages is still very volatile and could fluctuate as a result of economic indicators changing. With the interest rates remaining low for the near future and a new wave of competition between mortgage lenders expected to erupt, it is suspected that this upward trend will continue, though at a more moderate level.

The primary goal for the Help to Buy scheme was to lend a helping footing to first time buyers in their efforts to own their property. It was also aimed at providing a shot in the arm to the construction sector in an attempt to boost the economy. The first phase of the scheme was only available if someone wished to buy a new house, however, this was later revised and now any house up to the values of £600,000 would be covered by the program.

However, in the first few years of the launch, the scheme failed to encourage a rapid growth in construction resulting in the current market bloat in house prices. Although, in 2016, the number of houses grew by about seven per cent, indicating that the construction sector was trying to play catch up with the real estate boom. Whether this would able to create an equilibrium between the demand and supply and continue to boost the economy in the long run, has yet to be seen. Most economists are hesitant to make any such bold predictions as lending for mortgages is dependent upon the wider economic conditions in the country. This would have to be correlated by addressing the elephant in the room; what impact would Britain’s exit from the largest functioning economic block have on the lenders, and by extension, the housing market.