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.
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.
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.
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.
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.