8.5m will be denied credit as level of debt soars
Last updated at 09:54am on 22nd August 2007
One in six people may soon be blacklisted from
credit cards, mortgages and loans
The global credit crunch will see a sharp rise
in the number of Britons put on a debt blacklist and denied mortgages, loans and credit cards, experts claim.
The seven million turned down by mainstream lenders
in 2006 is predicted to soar to at least 8.6million by 2011 - around one in six of the adult population.
It could be even higher as a result of the shock
to the finances of the world's banks caused by the U.S. mortgage meltdown.
Thousands of Britons are living a hand-to-mouth
existence following five increases in the Bank of England base rate in the past year.
Home repossessions are up nearly a third on last
year, coupled with a big rise in county court judgments against debt defaulters.
At the same time, banks, building societies and
other lenders are radically reviewing their rules to screen out risky borrowers.
Until three weeks ago, a significant number of
finance giants were throwing money at homebuyers and others without making proper checks on their finances and ability to
This reckless approach is being abandoned in response
to the situation in the U.S. and pressure from the Financial Services Authority.
A number of British lenders have axed sub-prime
mortgages, which are sold to those with a suspect credit history. Mortgages where applicants self-certify their income are
also being cut.
In other cases, lenders have dramatically increased
the interest rates charged on these loans by as much as 2.5 percentage points. That can add £150 a month to repayments on
a £100,000 mortgage.
The failure of U.S. loans to risky customers could
cost as much as £50billion. The impact will make it much harder for UK banks to borrow money on the international markets
on favourable terms.
This will feed through to poorer mortgage deals
for homebuyers, while many would-be borrowers will be blacklisted completely.
Research by analysts Datamonitor shows the number
in the "non-standard population" - those blacklisted by mainstream lenders - started to rise in 2006 after many years of decline.
Maya Imberg, financial services analyst at the
group, said: "2006 saw an increase in the non-standard population for the first time in many years as the financial difficulties
UK consumers are experiencing are gradually feeding through."
The situation has worsened through the first half
• Mortgage repossessions rose 30 per cent
in the first six months compared to the same period last year, taking them to 14,000, the highest level for eight years. •
There were just under 250,000 county court judgments against individuals in the first three months of this year, the highest
quarterly figure for a decade. • Some 63,263 individuals went bust in the first half of this year, which was up by more
than 2,800 on the same period last year.
Miss Imberg said the figures "point to consumers
struggling in an economic climate that is now tougher than in previous years".
She added: "High levels of consumer indebtedness
are here to stay. The non-standard population will rise over the next five years as an increasing number of individuals have
difficulty coping with their financial commitments.
"We forecast the non-standard population to rise
from 7million in 2006 to 8.6million in 2011, driven by slightly higher unemployment, a rise in county court judgments, arrears
and repossessions, and self-employment."
Mortgage expert Ray Boulger, of brokers John Charcol,
said there is already evidence that those with a suspect credit history are finding it more difficult to get a mortgage.
This problem has escalated in direct response
to the problems in the sub-prime mortgage sector in the U.S., where thousands have defaulted.