The inability to raise credit from traditional sources such as High Street banks has caused around a million UK consumers to turn to sub-prime credit cards that charge rates up to a massive 60%.

Provident Financial is currently receiving about 2,700 applications daily for its Vanquis credit card which is aimed at people with a bad credit rating. The company currently has around 426,000 customers although even they admitted that they’ve rejected another 830,000 applications.

Although the average rate on the Vanquis card is 39.9%, some people will find themselves stuck with an astounding 59.9% in interest charges. This is in contrast to an average interest of 18.8% charged by other credit card providers.

Not surprisingly the credit crisis hit thousands of families and the Bank of England recently confirmed that the debt owing to credit card companies stood at £61.5billion in January 2010.

A bigger concern is emerging that as contractor mortgage and everyday credit becomes even harder to obtain, people will turn to doorstep lenders and companies offering payday loans. The rates here can be as high as 3,000%!

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Image: danger by jenny downing

The lack of recovery in the housing market in the UK is having a knock-on effect on developers and members of the RCIS.

For the 7th consecutive quarter members of the Royal Institute of Chartered Surveyors have seen a decline in their workloads whilst housing developers are reluctant to build new homes that nobody will buy. The Glenigan Index, which measures the value of new private home construction, reports a drop of 20% last year.

According to Steve Turner from the Home Builders Federation, the market needs to make more contractor mortgage funds available to let people purchase residential property. He believes that until this happens, the housing market will remain sluggish.

And it looks like the situation is set to get even worse in 2011 when banks and building societies have to begin repayments on loans they received from the government in 2007 and 2008. This will lead to more stringent credit criteria according to Moodys, the credit-rating agency.

It was hard enough to get a contractor mortgage last year as lender’s approvals dropped by 2.3m to a mere 1.3m. Although lobbyists have been calling on the Bank of England to further delay the repayment timetable, the Bank of England Governor, Mervyn King has confirmed that it will go ahead as scheduled. Banks and Building Societies will then have until April 2014 to repay a total of £319bn borrowed from the government’s emergency state schemes.

Prior to the credit crisis, UK lenders could raise money through the wholesale markets and in the year before the crunch they raised £130bn through those channels. But in the past 2 years they have only been able to raise £11.5bn according to figures from the Council of Mortgage Lenders.

Many Building Societies will be hit hard by this as they have already had their credit ratings cut. In fact, only the Nationwide now has the ability to look to the wholesale markets. Additionally building societies lost deposits of £7.6bn in 2009.

None of this spells good news for anyone hoping to sell their property, or get a foot on the mortgage ladder, over the next few years as economists and credit experts believe house prices will slump and contractor mortgages will be made available.

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Image: Going No Where! by bixentro