Best Loans Articles

There was a time, not all that long ago, when it was possible for a person to be able to go out and get themselves a personal loan, home owner loan or mortgage, without any real difficulty. There were a wide range of competitive cheap loans available on the market and it was possible to get the loan they required even if they had a poor credit rating from previous loan debts, or they maybe did not have proof of income, or required a high loan to value or income multiple.

For anyone who has attempted to apply for any kind of loan recently, without a perfect credit history, or lack of proof of income, this may sound like a bit of a fairy tale. However, the truth is that only just three years ago it really was that easy for a person to be accepted for the loan they required. Even someone needing a bad credit loan could be accepted for credit without too much trouble.

But then the credit crunch and banking crisis came along. A number of major high street banks and building societies had to be bailed out with rescue loans from the Government and the ability for someone to obtain any kind of loan seemed to dry up overnight, as wholesale funding on the money markets became unavailable and too expensive for the loan industry to continue to offer competitive loan deals to customers as they had done in the past.

As the risk increased for lenders and wholesale funding became less available, many loan companies withdrew many of their loan products, or even closed their doors to new loan business altogether. Even those companies who managed to keep their heads above water, dramatically increased their rates on all types of loans as well as tightening lending criteria on areas such as credit history, income multiples and loan to value ratios on secured loans.

Many people blame the banks and other loan companies for the problem, through irresponsible lending practices in the past, or the Financial Services Authority (FSA) for not imposing adequate regulation on the banks and stopping the problem from happening in the first place. Despite a lot of bitterness and ill feeling amongst consumers, the question of pointing a finger of blame at somebody in particular has become fairly irrelevant these days, as the main question on everyone’s lips is “when will things get back to normal in the loan industry?”

Last year saw one of the worst recessions in the UK for many years and although we are now officially out of recession, the economic situation and availability of loan products does not appear to be improving at any significant rate, despite a steady increase in new loan products for home owners, with new deals coming to the market on an almost daily basis at the moment.

Don’t get me wrong, it is certainly good to see new loan products entering the market, but we’re not really at the stage where we are able to start singing and dancing in the streets about it! At the bottom point of the market, in April last year, there were only 1,209 different home owner loan products for a potential buyer to choose from and although this figure has more than doubled over the course of the past twelve months, it is still a long way from the number of available home owner loan products prior to the credit crunch. To put it in perspective, at the height of the home owner loan market, there were in excess of 30,000 different loan products to choose from!

So the question remains: is the loan industry really out of the woods yet and can we expect to see the availability of loan products return to the levels they were at prior to the credit crunch? The simple answer to this question is clearly no at the moment.

Banks, building societies and other specialised loan companies are still extremely cautious about offering loans of any kind and just who they are prepared to lend money to. Whilst the number of available loan products is continuously increasing at the moment, the underwriting of these loans and lending criteria remains extremely tight and, whatever they may claim, many lenders are looking for reasons not to offer a loan, rather than positive reasons to offer a loan.

The other factor to consider is that practically all the loan products available on the market at the moment are all aimed at the prime market, for those people with an excellent credit history, proof of income such as payslips or three years accounts and no history of previous loan arrears or defaults.

Prior to the credit crunch there was a thriving market in the area of bad credit loans and self certification loans and although some of these products were rather expensive, it meant that someone with a poor credit history, or a self employed person with no accounts could be accepted for the loan they required.

Currently there are no self certification loans at all on the market and if the Financial Services Authority (FSA) have their way, this type of loan will be banned in the future, under the Mortgage Market Review (MMR). Although there are a few bad credit loan products on the market at the moment, these are very few and far between and will only allow very light adverse credit. In the past, bad credit loans were an industry on their own with products ranging from “feather light adverse” all the way through to “heavy adverse” for people with a number of current County Court Judgements (CCJ’s) and even current high loan arrears levels.

One of the main drivers for the loan industry is the housing market and although we are seeing house prices increase steadily at the moment, many experts believe that we could yet be in for another drop in the market, effectively leading to a “double dip” recession.

The loan industry is currently on a knife edge road to recovery and any fluctuations in market conditions could cause a second and possibly deeper downturn. If house prices or the base rate of interest were to increase too quickly, many first time buyers and other house movers, could be priced out of the market and be unable to afford the loan they required.

This is a fine balancing line which needs to be controlled by the Government, the Bank of England and loan providers all working together in order to stop a second wave of recession in the UK and 2010 could yet go either way.

In conclusion, it is fair to say that the loan industry and availability of loan products for customers is a long way away from where it was prior to the credit crunch. Furthermore, it is likely to be a long time before we ever get back to where we were before the recession, if we ever do. Even if the loan industry does recover fully, this is likely to take years, rather than months and even then it is unlikely that we will ever see the return of products such as self certification loans and heavy adverse loans, along with things like the high 125 per cent loan to value products, which many people took for granted.

We are certainly on the long road to recovery, but the loan industry and consumers alike must be patient and be more realistic about the loan products on offer and take a responsible attitude to both lending and borrowing. It will take time and there is no magic which can simply be waved to make things right once again!