Changes to lending criteria over the years have affected the way most of us access credit facilities. Some changes in lending criteria have been more noticeable than others – most notably those affecting mortgage eligibility. Indeed, some have found that the more recent lending criteria changes on the High Street have counted them out of the running entirely.
Lower Borrowing Costs, Higher Rejection Rates
It’s an interesting phenomenon, but as borrowing criteria has changed for UK borrowers, overall borrowing costs have become increasingly competitive. Though it’s something of a contradiction, lower borrowing costs have been somewhat augmented by higher rejection rates.
Of course, this is all dependent on the type of credit facility you’re applying for and the lender respectively. But as a rule of thumb, loan products have become as competitive as they’ve ever been, though are proving more difficult to access than ever before.
Specialist secured loans may be the only exception to the rule, for which general lending criteria has remained fixed for some time. You provide collateral to cover the loan, you borrow the money you need and repay it as agreed. In the event of non-payment, ownership of the assets is passed to the lender – the simplest and oldest form of lending there is.
With conventional secured loans like mortgages and unsecured personal loans, however, it’s a different story entirely. Applicants at all levels are being squeezed and scrutinised like never before, resulting in a situation where millions of would-be borrowers are afraid to submit applications in the first place.
Bigger Deposits Payable
One of the most significant changes to lending criteria over the past 10 years is the requirement for increasingly large deposits to qualify for a mortgage. The problem is that as average house prices continue to climb, deposit requirements are pricing prospective buyers out of the market. In a typical working example, a property with a modest £200,000 value subject to a 20% deposit to qualify for a mortgage would mean somehow coming up with £40,000. For obvious reasons, this just isn’t the kind of cash most people can pull together.
Credit Check Reliance
The way things are today, it’s hard to remember a time when the credit rating system didn’t exist. Rather than becoming more relaxed and realistic as the years go by, the UK’s credit rating system is becoming harsher and more restrictive. Right now, the overwhelming majority of everyday credit facilities are approved or denied by way of credit scores alone. And if all this wasn’t enough, it’s becoming increasingly difficult to maintain a flawless credit history.
Lack of Flexibility
There’s a growing lack of flexibility in general today on the UK High Street. It’s a classic case of “Our way or the highway”, wherein the lenders themselves expect their customers to bow to their demands. As opposed to fairly considering the requirements of the customer and offering tailored financial products accordingly. All of which goes some way to explain why more domestic and business borrowers than ever before are setting their sights on the UK’s alternative lending market.
Independent Lender Expansion
While all this is going on, the UK’s more proactive specialist lenders are creating dynamic financial solutions to compensate for the lack of flexibility on the High Street. Particularly where secured loans are concerned, applicants are not expected to undergo extensive credit checks, provide long-term proof of income and generally jump through hoops for the amusement of the lender. The growth and expansion of the independent lending sector is such that some (though comparatively few) major lenders have begun introducing new-era credit facilities like bridging loans and specialist property finance.
The extent to which Brexit further impacts lending criteria remains to be seen, though it’s unlikely the restrictiveness of today’s High Street will be reversed in the near future at least.