Mortgage and unsecured lending plummets

Just 12 months into the credit crunch and lending in the mortgage and unsecured loan market has fallen at a rapid pace of £2.7 billion a quarter on average over the last year. In total, providers have reduced lending by £11 billion in these two sectors combined from the second quarter of 2007 to the second quarter of 2008. In order to find out the true impact of this 12 month financial tsunami, uSwitch.com has taken a closer look at consumer lending in the UK to find out where people are borrowing money from.

The research reveals that consumers are turning to credit cards in their ongoing struggle to get their hands on extra money. Although the overall amount issued in unsecured personal loans has plummeted by £283 million each quarter over the last year, spending on plastic has surged by an average of £179 million a quarter - mopping up more than half of the deficit. This is a total increase of £717 million in credit card spending when comparing the amount lent in the second quarter of 2008 to the second quarter of 2007.

With a total of 30.8 million credit cards holders in the UK and 67.3 million credit cards in circulation, consumers actually have access to a lot more credit than they currently use. With the average credit card balance at £1,384 and the average limit at £5,129, consumers can spend an additional £103 billion before limits are reached. If consumers ‘maxed out' the credit capacity on their accounts, the amount owed would surge from £54.9 billion to a staggering £158 billion.

In the meantime, other forms of credit are also becoming less available. It's no great surprise to see that the mortgage market has followed the same trend as the unsecured loans market. Lending has plummeted by an average of £2.5 billion per quarter in the past 12 months, a staggering £10 billion when comparing the amount lent in the second quarter of 2007 to the second quarter of 2008. As this figure includes all secured lending, it also reflects a decline in re-mortgaging and the number of secured loans issued.

Simeon Linstead, head of personal finance expert at uSwitch.com, the online price comparison and switching service, comments: "In just 12 months, this economic landslide has sent the consumer lending market into disarray. Our research has confirmed that both mortgage lending and unsecured loans are drying up by the day. For those with perfect credit records, it's unlikely this will be an issue, but others it could be problematic. In response to this, it seems consumers are turning to credit card providers for extra cash. Whilst it's good news that people can still access extra money if they need it, this is not a sustainable solution for the problem. Ultimately, this has had a huge knock on effect on the housing market.

Linstead concludes: "The reduction in the amount of credit issued by providers is not the only problem facing consumers. Best buy mortgage and unsecured loan deals have become more expensive over the past twelve months. However, the market is vast and there are still competitive rates for those who take the time to compare the offers available. Online loan deals are typically lower than their offline counterparts and in times of volatility in the credit markets and banking world, borrowing on a fixed rate loan can offer borrowers the peace of mind that, both, their interest rate and monthly payments are fixed for the term of the loan."