Well, what a year it has been for unsecured loans to consumers here in the UK. But what, in the opinion of the team at LoanBroker, are the year’s top five headlines?
After much discussion, we’ve agreed on what they are and we’re going to remind you about them and what they mean to you. The top five headlines are:
- The collapse of Wonga
- Consumer credit in the UK drops significantly
- Consumer loans at slowest growth in 3 years
- Steep fall in the amount of write-offs
- Loan interest rates going up
Collapse of Wonga
In August, Wonga went into administration. Wonga had become the most famous brand in the payday loan and short-term loan market with a share of 40% of the value of all loans made in the UK.
Wonga was one of a number of survivors following the regulatory changes to the High Cost Short Term Credit (HCSTC) market and, in the minds of many commentators, the company really cleaned up its act. Its management had hoped that it could maintain a market-leading position as the rules changed and become one of Britain’s most trusted financial brands.
However, despite the advances it made, its past caught up with it. Encouraged by claims solicitors, a significant number of former customers complained to the Financial Ombudsman about its former lending practices and the way in which it chased borrowers who had defaulted.
Every single complaint to the Ombudsman (after a small qualifying amount) cost Wonga £515 in administration fees – and that was before the cost of its own labour and any compensation it actually had to pay out. The number of £515s quickly mounted up devouring the cash that was left in the company’s bank account. How many £515s? 9,500 at the end of November 2018 totalling nearly £5m, with another 14,500 complaints making their way through the system to follow.
There were no winners from this except for the company’s administrators who are expecting a payday of £4.1m, according to the Daily Mail.
UK consumer credit drops ‘significantly’
The first signs of a slowdown in the amount of money borrowed by Brits was reported in April. The Bank of England’s survey of credit conditions reported that the slowdown was “largely driven by a changing appetite to risk, with lenders also reporting that the credit scoring criteria for granting both credit card and other unsecured loan applications tightened significantly in Q1” (source: FT)
Lenders also reported to the Bank of England that the number of consumer defaults was rising and that the proportion of cash saved by British households had fallen to 0.9% – the lowest since 2009 in the midst of the Great Recession.
UK consumer loans at slowest growth in 3 years
This story continued into the summer as the Bank of England reported growth of 8.5% year on year in consumer credit, the lowest in three years.
Although this might sound like good news, it isn’t. British households spent £900 more on average per annum than they received in 2018 – the first time this has happened since the big credit boom caused by the Big Bang in the middle of the 1980s.
Speaking to the Financial Times, the chief economic advisor to EY Item Club, said that the data “reinforces the impression that consumers are currently relatively cautious in their borrowing while lenders have certainly become warier about advancing unsecured credit”.
Steep fall in the amount of write-offs
There was good news reported by the British Bankers’ Association which revealed that the amount of personal debt being written off was 87% less than at the height of the financial crisis in 2009. £610bn was written off in 2017 compared to £4.6tn in 2009.
Loan interest rates going up
Interest rates on non-HCSTC loans have been gradually rising during the year, according to the Moneyfacts UK Treasury Report (Unsecured Personal Loans, Credit Cards and Overdrafts).
However, it’s important to look at this in a wider context and, to do that, it’s worth going through the British Bankers’ Association figures again, looking back to the mid-1990s to get a true historical context.
In 1995, the average interest rate on £5,000 unsecured loans was around 11% before spiking up to between 13% and 14% during the Great Recession. In 2017, the interest rate was 8.4%.
For loans of £10,000, the average interest rate in 1995 was just short of 18% and, interrupted by a couple of short periods of increase, the price of these loans has fallen under 4%.
High-cost short-term credit
Despite the collapse of Wonga, the payday loan and short-term loan market remains buoyant and competitive.
Loan Broker, licensed by the Financial Conduct Authority, arranges loans between borrowers and Financial Conduct Authority-licensed lenders. We’re here to help you get the lowest short-term or payday loan possible. We do this by comparing and contrasting the loans on offer from our panel of lenders.
This is how it works. You fill in your personal details on the application form on our site. Be careful not to make any mistakes – you’d be genuinely surprised how many loan applications get held up because there are little (but important) errors on the application form.
Once we have your details, we then send them over to the lenders identified by our computer system as the lenders most likely to want to work with you. Every lender has a specific profile of people they want to lend money to and we make sure that we don’t waste our lenders’ time or your time presenting your application to companies whose profile you don’t meet.
We then get the quotes back from each lender and, in seconds, our computer sifts through them to present you with the very best rate we have on offer. If you want to proceed with that offer, simply fill in the online application form and tick the “Agree” button. When you do that, a new relationship between you and your lender will be created and you’ll get your money within a short space of time
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