Loans in the UK have been part of the financial markets since as long as nay of us have existed. But their nature and role has changed dramatically down the years, especially after the events of recent years. Moolr took a look at how loans have changed in the UK.
It is hard to believe, but there was once a time when the internet did not exist! Purchasing anything in those days was a much simpler task, in as much as your options were severely limited. You made purchases in person, physical goods were handled and bought face-to-face and you had to go out to get stuff. And that was the case with loans too. Pre-internet, you had to win loans, and getting one felt like going to a job interview. Appear smart, go to your local bank, and state your case. Whether you were successful depended on a variety of factors. Your history with the bank, income, credit checks, the mood of the bank manager or even bank policy at that time, or the state of the general economy. 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. they failed to meet the banks’ strict criteria. Either no security, poor or lack of credit, and difficulties verifying income. There was to be honest 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, few options remained. The only option for vast swathes of the British public were what we called ‘door stop loans’. 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. They would continue thus until the loan was repaid. For years, we ingrained the door stop loan into British culture.
Door step lending had 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. So many were 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 lendings.
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 lending restrictions. The housing boom encourages such actions. It became easier to obtain secured and unsecured loans. Credit cards were issued with high spending limits.More and more people were getting into more and more debt. Also, the door stop lending started to change. Companies like CashConverters grew exponentially, offering credit for household goods. They also provided 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 was the worst crisis to hit financial institutions since the Great Depression. The economic boom of 1997 – 2006 saw house prices shoot up. This caused the lending companies (big banks) to boast massive profits and be able to relax their lending restrictions. It was easier than ever before to get a loan, whatever your circumstances. 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.
People had mortgages that could not afford them. They were not the AAA rating the banks said they were. Many big banks could not meet their commitments. Shares plummeted and savers tried to retrieve their funds en masse. This compounded the banks’ financial difficulties. The Britih government nationalised Northern Rock. The government had to bail out household banking names. 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. Institutions imposed a huge squeeze on credit and lending. High street banks could not lend money as the money was not there. The British public built up record levels of debt, unemployment went up and an increasing number of people struggled to pay everyday bills, let alone their financial commitments.
Aided by the advancement of the internet, more and more ‘payday lenders’ set up shop. 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.
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. They capped payday loans at 0.8% per day of the amount customers borrowed. 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 advanced online lending replaced the wild wild west lending of before and dominate an industry once the preserve of high street lenders only. Regulation still shackles the big banks 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. In some cases, you can source 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 high street banks offering the only options are long gone. They still serve a vital role in securing mortgages, larger personal and business loans. However 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 offered to them than ever before, and now with strong government regulation behind them, there is more consumer protection than ever before.