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Lenders reject five million credit applications

Financial newsAlmost 5 million applications from people seeking new credit cards or a personal loan were rejected over the last six months by lenders squeezed by the credit crisis.

The financial comparison website MoneyExpert.com said yesterday it had evidence that up to 3.27m credit card applications were turned down by cautious banks over the last six months. It claimed a further 1.5m personal loan applications were also rejected - the equivalent of over 20,000 requests a day.

Evidence emerged yesterday that millions of mortgage customers will not get the full benefit of last week's base rate cut, introduced to stimulate the economy. Sean Gardner, director of MoneyExpert.com, said the banking crisis had left lenders terrified to lend to almost anyone.

"They are battening down the hatches and focusing on getting as much money back as possible. They appear to be tightening up on already tightened rules for new applications."

Gardner said that consumers aged between 25 and 34 were the most likely to be rejected for loans. His research found that around 21% of applicants in that age group had failed to get a credit card over the previous six months. Around 10% were turned down for an unsecured personal loan.

"Anyone whose credit record is even remotely suspect risks rejection. Banks want to recover their bad debts." He said that banks were increasingly looking at affordability and were concluding that consumers facing significantly higher food and utility bills would be financially stretched by any new loan repayments. He also warned those who wanted a loan against making multiple applications which he said were a sure sign of desperation to the banks.

Analysis by the website found that consumers who were successful faced higher charges than 18 months ago. It said the average APR on credit card purchases has increased from 16.77% in March 2007 to 17.46%. And the average rate on a £5,000 personal loan has almost doubled from 8.6% to 15.3%.

A separate poll by the comparison website uSwitch.com found cash-strapped consumers have been cancelling insurance or pension contributions in a bid to cut household expenditure.

Homeowners will not get the full benefit of last week's 0.5% base rate cut in the form of lower mortgage payments. Nationwide, said that it will only be passing on 0.3% cut in the rates it charges its customers on its standard variable rate.

Earlier this week, the building society, which has 14 million customers, raised the cost of its new tracker rate mortgages by 0.3% allowing to increase margins.

It has also reduced the number of mortgages on offer to those borrowing more than 85% of their home's value. Northern Rock said it was reducing its SVR by just 0.15%.

Source: Guardian
Date: 17.10.2008 [199]

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