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The Changing Face of the UK Loans Market

There once was a time that if you wanted to borrow money you would need to make an appointment with your bank, get dressed up in your best suit and go cap in hand in to your bank manager and literally beg for money. Whether you got any money or not depended on a variety of factors – history with the bank, income verification, credit checks, the mood of the bank manager; everything was taken into consideration and more often than not, consumers were not getting the service or the funds they wanted. Those that were successful found that getting a loan quote, and then an actual small business or personal loan was an arduous task with plenty of paperwork, meetings, bureaucracy and a process that could take up to months.

For the large number of the UK population that failed to meet the banks’ strict criteria – either no security, poor or lack of credit, and difficulties verifying income, there was very little choice when it came to borrowing money. If family, friends or the workplace couldn’t help out and the high-street banks simply did not want to know, the only option for vast swathes of the British public were what is called ‘Door stop loans’. Led by Provident Financial, door stop loans were the only method of obtaining credit. You would telephone the company to arrange a house visit, someone would come to your home with a loan agreement, (at a very high rate of interest) and then someone would come to your house every week and collect a cash payment until the loan was repaid. For years, the door stop loan was ingrained into British culture and the weekly visit from ‘the man from the provy’ was as normal to the British household as the daily visit from the Milkman or the weekly visit from the ‘Pools man’.

Door step lending has been common place in the UK from the 1950’s. However, as consumerism and home ownership grew in the 1980’s, the recession of the early 1990’s left more and more people with bad credit, in negative equity and unable to meet their financial commitments. Door step lending grew to record numbers and more and more people relied on door stop lending for their everyday credit needs.

The economic boom of the late 1990’s and most of the 2000’s saw the loans UK market change once more. Banks and building societies in the UK were encouraged by profit-seeking shareholders to relax their lending restrictions. Encouraged by the housing boom, it became easier to obtain secured and unsecured loans, credit cards were issued with high spending limits and more and more people were getting into more and more debt. Also, the door stop lending started to change. In the 1990s the Money Shop, a payday lender owned by US company Dollar Financial Corp, grew from having a single shop in 1992 dealing most with cheque cashing, to 273 stores by 2009. Companies like CashConverters grew exponentially, offering credit for household goods as well providing high interest loans to the growing number of people. Then the banking crash of 2008 happened and the loans UK market changed forever.

The 2008 Financial Crisis

The 2008 financial crisis was the worst crisis to hit financial institutions since the Great Depression. The economic boom of 1997 – 2006 saw house prices shoot up, causing the lending companies (big banks) to boast massive profits and be able to relax their lending restrictions, making easier than ever before to get a loan, even if the borrower had poor credit or no income verification. This market, called the sub-prime market, helped create an economic bubble which only started to burst when house prices started to fall and many people found themselves with negative equity. The collapse of the housing bubble left many big banks unable to meet their commitments, shares plummeted and savers tried to retrieve their funds en masse, compounding the banks financial difficulties. Northern Rock had to be nationalised by the British government. Household banking names like Abbey, Barclays, Clydesdale Bank, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, Standard Chartered Bank all had to bailed out by the government and regulation was put in place to ensure that a crisis like that would not happen again.

So, what did the financial crisis mean to the average man in the street? The Bank of England and the then Financial Services Authority (now Financial Conduct Authority) imposed a strict set of guidelines on big banks to prevent them from lending too much money. Gone were the days of low apr loans given to anyone that walked into a bank. There was a huge a squeeze on credit and lending. High street banks could not lend money as there was no money to lend. The British public was in record amounts of debt, unemployment was rising and an increasing number of people were struggling to pay everyday bills, let alone their financial commitments. Aided by the advancement of the internet, more and more ‘payday lenders’ (a relatively small amount of money borrowed at a high rate of interest to be repaid when the borrower is in receipt of their next paycheck) became to spring up. Door stop lenders experienced record profits. In 2011, the Provident Financial, the king of door stop lending, boasted 2.3 million customers and made £140 million in profit. However, it was all a bit wild wild west. There was no regulation in the payday loans UK market and lenders were charging astronomical APR rates.

Loans: UK Market Cleans Up Its Act

With so many new online lenders appearing, demand for credit growing and no real regulation to reign them in, there was serious abuse. Tales of loan sharks charging 4000% APR and using underhand tactics to ensure the repayment was made sparked a government review. There were 3,216 complaints about short-term loans in 2015/16, compared to 1,157 the year before. The main complaints were: lenders not carrying out affordability checks, providers unwilling to agree on repayment plans, the use of continuous payment authorities and debt-chasing tactics.

By 2015, The Financial Conduct Authority (FCA) brought new regulation into play. Payday loan rates were capped at 0.8% per day of the amount borrowed, and no-one would have to pay back more than twice the amount they borrowed. Approximately half the amount of payday and small loan lenders disappeared within a year and the largest payday lenders found their profits halved.

Today, the loans UK market is a different story altogether. The rise of Fintech in the UK, coupled with further advancements in technology have seen more advanced online lending replace the wild wild west lending of before and dominate an industry once the preserve of high street lenders only. The big banks are still shackled (rightly so) by the regulation brought in following the 2008 crisis and getting a loan from your average high street bank is just as difficult now as it was nearly a decade ago. However, the whole lending sector has changed forever. You can get an online loan quote within seconds and regardless of your credit history or income verification, in some cases, have a small loan in your bank account within 24 hours.

Today’s generation of online lenders in the loans UK market offer fast, transparent and regulated lending. The days of having to rely on high street banks for your everyday lending are long gone. They still serve a vital role in securing mortgages, larger personal and business loans, but the need for more flexible, faster and more convenient lending combined with the advancement of technology has changed the loans UK landscape forever and for the better of the consumer. The average man in the street has more choice than ever before, more lending options available to them than ever before, and now with strong government regulation behind them, there is more consumer protection than ever before.

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