News: More households set to be refused credit

A new report reveals that households are having more difficulty coping with their financial commitments, and forecasts that the number of people in the UK systematically denied credit by mainstream lenders will increase from 9.1 million in 2005 to 9.4 million by 2010.

After a number of years in decline, the number of people systematically refused credit from mainstream lenders reached a turning point in 2005, said independent market analyst Datamonitor on Wednesday.

Maya Imberg, financial services analyst at Datamonitor and author of the report said, "Consumers have accumulated a significant amount of personal debt and they are now increasingly vulnerable to economic upsets. Even small changes can significantly affect ability to meet repayments for those with high levels of indebtedness."

Ms Imberg notes that such a change points to bigger opportunities for non-standard specialist lenders, as they will have a greater pool of customers to target. Non-standard individuals are those who are systematically rejected from mainstream lenders because of a variety of reasons such as County Court Judgements, unemployment, bankruptcy record etc.

Economic growth in 2005 was more subdued than in the previous years as consumer borrowing and consumption slowed, and unemployment rose steadily.

"The UK economy has now turned a corner and, for the first time since the trough of the last recession, there are various indications that households are having more difficulty coping with their financial situation," commented Ms Imberg.

Indeed, 2005 saw the majority of bad debt indicators change direction:

  • Mortgage arrears rose for the first time since 1992. According to data from the Council of Mortgage Lenders (CML), at the end of 2005, repossessions totalled 10,250 and mortgage arrears had risen to 105,990.
  • County Court Judgements (CCJs) rose for the first time since 1991. Figures from the Registry Trust show that there were 573,231 CCJs registered in 2005 an increase of 34,938 on the previous year’s levels.
  • According to the Department of Trade and Industry, personal bankruptcies hit a record high in 2005, with their number rising by 29.2%.

While it is important to remain aware of the fact that bad debt indicators remain, for the time being, at very low levels, they nevertheless point to consumers struggling in an economic climate that is now tougher than in previous years.

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