The Importance of lending money responsibly
In the first few months of 2014 the FCA handed out over £84 million in fines, showing the determination to improve the services, products and the conduct of businesses within financial services.
A key area lenders are having to focus on is a customer’s affordability, now and in the future. Looking at a consumer’s current affordability can be done comprehensively by understanding their monthly disposable cash and previous attitude to looking after credit agreements. However, assessing future ability will have many other considerations, ranging from job security and ability to pay if working circumstances change.
Therefore responsible lending has been placed on all lenders to look at affordability issues and not before time. Over 75% of consumers do not trust bankers after the credit crunch crisis. Despite this, the car finance marketplace has seen significant growth over the past 3 years at over 18% year on year. This is due to consumer confidence returning and asset lenders reducing some of their risk criteria.
Creditplus has been able to help consumers make all the relevant costs of credit transparent. This has been seen as a good fair practice for consumers, growing the Creditplus business by over 120% this year alone, confirming that consumers are looking for open, fair and accurate information to make their loan decisions. Over 38% of all applicants refer to review websites before making final decisions.
UK consumers have enjoyed the lowest mortgage interest rates for over 5 years. However, speculation that rates will rise across 2015 in 3 stages, by 0.5% each time, will mean home owners will pay over 32.3 billion in increased mortgage payments. Interestingly, in the first quarter of 2014, self employment has risen by over 200,000 making up half of the increase in the rise in employment. The issues for these consumers and small businesses will be their ability to show regular income if they wish to borrow. Over 4.5 million UK residents are now self employed.
A growing trend is the number of mothers with young children deciding to become entrepreneurs, looking to provide their own income under the terms and flexibility of working for themselves. Over 65% of mothers with children less than 10 years old are starting self employment.
Probably one of the most concerning trends is the financial knowledge within the younger generation of 14 – 24 year olds. 42% could not interpret the difference between being in credit or overdrawn on their bank statements, and their attitude towards credit was take it rather than consider having any element of savings.
This year will see a good back to basics approach where lenders will have to properly assess the consumers ability to afford the loan, and make sure they are fully informed (with a minimum 14 day cooling off period) to ensure the consumer obtained a fair market price for the financial loans they may have taken.
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