Tough Going for Customers as Banks Seek Security


Recent figures from the Courts Service show that lenders of consumer credit (as opposed to mortgages) are increasingly taking steps to reduce their risk by seeking to secure their lending against the homes of credit card holders and other unsecured borrowers who have a chequered repayment history – in some cases seeking charging orders on a borrower’s home if only one payment is missed.
The number of applications made in 2006 was over 90,000, nearly six times the number made in 2000. 2007 is expected to show a further increase. That this is an attempt by the banks to obtain better levels of security is clear, as credit agency Experian recently reported that unsecured debt growth in the UK has been slowing, having risen only 9.2 per cent in the last 12 months. According to Experian, ‘The data also suggests that lenders have been implementing credit tightening policies well before the widely reported credit crunch of August 2007. It shows that growth in lending has slowed markedly across all key credit products and credit tightening on cards, loans and mortgages was already well established in advance of the so-called credit crunch’.
The increasing number of bankruptcy and winding-up petitions (up from 12,000 in 1999 to 52,000 in 2006), fuelled in part by the more beneficial bankruptcy regime created by the Enterprise Act 2002, has no doubt added to the nervousness of lenders.
What this means for businesses is that lenders are increasingly seeking to obtain extra security for existing advances and have reduced the lending risk they are willing to take, as well as seeking higher lending margins – a factor which means that recent base-rate cuts have not been passed on in full to borrowers. Failure to adhere to covenants in lending agreements is unwise and the use of credit cards as a source of short-term emergency finance is becoming a riskier strategy than hitherto.
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Partner Note
Court Service figures reported in the Times, 22 March 2008.
Experian press release – 19 March 2008. See
Bankruptcy figures from the DCA website. See

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