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Banks Reluctant to Lend

After suffering heavy losses of billions of pounds through poor investments in sub-prime mortgage-linked assets, the UK's big banks are now very reluctant to lend to one another.

The outcome of this nervousness is that the funds being made available for consumer lending in the form of personal loans are now very restricted. Such is the problem that people with clean credit histories, who are perfectly credit worthy are now being rejected when they apply for a loan. Just a few months ago they would have easily qualified for a cheap loan.

This state of affairs has continued for a significant period now and the Bank of England is starting to make noises to the effect that it is no longer satisfied with the explanations coming from banks. It says they may be overstating their problems and as they maintain this lack of cash liquidity, and the follow-on lack of funds for lending, means more and more smaller competitors are going out of business. Already hundreds of smaller loan brokers have shut down and the longer this situation continues, the easier the market will be for the survivors when normality resumes.

Already Abbey has taken three times as many home loans in recent months than it normally does and the moves for right issues from RBS and HBOS are signs that they intend to be amongst the survivors who remain to hoover up significant volumes of the loans that will be arranged in the future.

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