Banks lose that lending habit, as alternatives ramp up

Have you checked out the state of lending on the high street recently? Here are three reports that tell an interesting story.

1. People who use payday loan companies could be getting a better deal than if they used high street banks.

Data released today by the Chartered Institute for Securities and Investment shows that someone looking for a modest stop-gap loan would do better to go to Wonga than NatWest or Lloyds.

A £200 loan from a payday lender would have cost £66 last month, compared with £84.22 as an unauthorised overdraft from Lloyds or £110 from NatWest.

Where payday lenders make most of their money, of course, is when borrowers fail to repay within a short space of time and keep rolling over their loans.

‘Payday lenders look good next to banks’ was the headline in yesterday's Financial Mail on Sunday where editor Lisa Buckingham commented that ‘high street banks are attempting to achieve by stealth what loan sharks do upfront’.


2. Santander has duly delivered on its commitment to reduce mortgage lending in the UK – and announced that it will continue to cut back further.

Last year, it said it would be scaling back on lending and reducing its market share.

Now Santander’s annual report shows that it successfully reduced gross mortgage lending by 38% last year after tightening its lending criteria. Market share of gross mortgage lending dropped from 18.4% at the start of 2012 to just 8.5% at the year end.

The report says: “Further managed reductions in the mortgage stock and a lower market share are expected in the future, although this reduction is likely to be smaller than in 2012. We will continue to lend at favourable margins with a good risk profile.”

Remember the good old days when people were urged to 'get the Abbey habit'?


3. Shawbrook Bank has introduced the first 95% LTV secured loan product for employed home owners.

The deals are designed to provide an alternative option for credit-worthy borrowers who want to raise capital without disturbing their current mortgage deal.

Shawbrook says its new deal will open up the secured market to a growing number of individuals looking for remortgaging alternatives.
 
Loan sizes range from £3,000 to £25,000. As with all Shawbrook’s secured loan products, the bank allows monthly or lump sum over-payments without penalty, and can be used for a range of purposes, including home improvements, holidays, educational fees and restructuring their finances into monthly affordable payments.  
 
Maeve Ward, head of sales, secured lending, at Shawbrook Bank, said: “We’re very proud of the impact we made in the secured lending market last year and are delighted to introduce a new product which the sector was crying out for. We were aware that some home owners were being hindered by a lack of LTV lending options, but this product will really open up the market to them.
 
“Our aim is always to be one step ahead of the curve and this product is a first for the market.

“These changes illustrate our ambition to make Shawbrook the lender to follow in 2013 and we have many more product developments to follow in the coming months, so watch this space.”
 
Obviously, your financial services advisers will be up to speed on all this. But welcome to the new world of lending in 2013.