More expensive loans a certainty

By ALAN O'SULLIVAN
Updated:

 

The certainty of even higher loan rates loomed on the horizon this week as the global credit crunch claimed the scalps of several UK loan providers.

In a move almost unheard of in the loans industry, five UK loan providers signalled their intention to withdraw from the market as credit continues to dry up following the summer's sub-prime credit crisis.

The scarcity of credit – which has been driving up loan rates by as much as 4% over the past few weeks – has worsened to such an extent that it looks as if loans will continue to get more expensive well into 2008.

With effect from today, Liverpool Victoria will no longer sell unsecured personal loans, following on from the announcement earlier this week that GE Money is withdrawing its competitive rate of 6.9% on loans between £7,500 and £25,000. Leeds Building Society withdrew at the end of last week.

Within the unsecured loans market, SPPL and LoanOne have withdrawn their ranges, while Money Partners will do so from November 9.

Bob Sturges from Money Partners said other providers are likely to follow suit, while further rate rises are a 'certainty'.

He added: #39;This decision was against our wishes. The credit crunch hit us a double whammy; it became harder to find funds, which meant we had to raise rates, which meant people were less interested in borrowing.

'And it didn't get any better as time went on – we simply weren't able to secure new lines of funding. We have nowhere to go; we're disappointed and frustrated.'

Lisa Taylor from price comparison website Moneyfacts.co.uk said that the number of withdrawals from the market is 'highly unusual'.

She added that the fall of such a range of different providers with varying degrees of competitiveness is a signal of how far-reaching the credit crisis has become:

'Providers may consolidate their loan offerings or charge higher rates from time to time, but for someone to pull out of the market entirely is shocking and unusual.

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'The fact that there have been three in one week is very worrying indeed.'

As financial uncertainty in the market grows, a host of loans providers have raised their rates over the past two weeks.

A total of nine providers pushed up their rates recently. Bradford & Bingley was the chief culprit where interest on loans between £2,000 and £3,000 went up to 17.9%, a jump of 4%.

For loans between £5,000 and £7,500, it raised its rates by 3.2%, up to 9.9%.

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