A credit drought may be on the horizon for families in the UK, as banks and building societies begin to cut back on their generosity in handing out credit cards and overdrafts to the UK’s beleaguered consumers.
Experts say that lenders are beginning to clamp down on applications for debt, as they don’t want to risk defaults from borrowers as the economy shows signs of a slowdown.
It seems the UK’s householders will not be able to escape the effects of the crisis affecting the financial markets, and there is an expectation that mortgage lenders are set to increase their rates as a result of the problems in the markets, despite the fact that the Bank of England held its base rate at 5.75% last week. It will be a painful blow, if rates do go up, for the two million home owners who will be coming off cheap fixed rates deals in the next few months.
The credit checking company Equifax said that households would find it more difficult to borrow money in coming months as lenders tighten their lending criteria and refuse applications.
Those who will find it particularly difficult will be those whose debt record is impaired in some way. They will face higher interest rate charges – if they are allowed to borrow at all.
The warnings of borrowing problems came as London shares plummeted again at the end of last week, as fears grew about the state of the American economy, where the housing slump is beginning to cause a sharp fall in employment.
Last week the Bank of England issued a statement with its rate decision. It said: “It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households.†It is only the third time the Bank has issued explanatory notes since gaining independence from the Government in 1997, and both previous occasions were during global financial crises.
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