Banks restrict lending to existing customers

More people are applying for loans but fewer are securing one, according to new research by moneysupermarket.com.

The comparison website said that the more cautious lending strategy being employed by banks was making it increasingly hard for consumers to get personal loans. It said figures from the British Bankers’ Association showed that borrowing through personal loans had dropped by 28 per cent this year.

However, it added that searches for loans made through its website were actually 20 per cent higher, suggesting the fall in lending is being driven by a lack of supply and not a lack of demand.

Although the financial crisis has somewhat eased over the past couple of months, the figures appear to show that personal lending remains tight. Customers are now left with a fewer choice of lending providers.

Of those banks that are lending three-quarters of these are restricting personal loans to existing customers, the research shows.

Seven out of the top nine banks that are most active in the personal loan market will only advance money to people who already hold products with them, typically current account customers.

Barclays reserves its best rates for existing customers and accepts very few loan applications from non-customers, leaving only Alliance & Leicester fully open to business for new customers.

The cost of personal loans has also edged higher. The current average of the top 10 loans of £5,000 is 10 per cent, up from 8.5 per cent in January.

Non-bank lenders such as Tesco currently offer the most competitive rates, but their lending criteria is among the strictest.

The Bank of England announced earlier this month that non-mortgage or credit card lending fell by £0.7bn in October.

Tim Moss, head of loans and debt at moneysupermarket.com, said; “It is quite clear that the fall in this kind of lending is almost entirely down to a lack of supply.”

“We have also seen the average rates for personal loans increase across the board so consumers who are lucky enough to be accepted for a loan have to pay more too.”

Tesco, Sainsbury Bank, Alliance & Leicester and Abbey all offer loans of £5,000 with an 8.8 annual percentage rate (APR). On £7,500 loans, HSBC and Barclays offer 8.7 and 10.9 per cent respectively. Although these providers are filling the gap by offering more competitive rates, Mr Moss concedes that customers will face difficulty in securing one.

“The most important thing to remember is that the APRs quoted by lenders are ”typical” and the rate you see may not be the rate you are accepted at, so pay special attention to the deal you are offered to ensure you get the best product for you,” Mr Moss said.