Over 8.5m will be denied credit as level of debt soars

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One in six people may soon be blacklisted from credit cards, mortgages and loans

The global credit crunch will see a sharp rise in the number of Britons put on a debt blacklist and denied mortgages, loans and credit cards, experts claim.

The seven million turned down by mainstream lenders in 2006 is predicted to soar to at least 8.6million by 2011 - around one in six of the adult population.

It could be even higher as a result of the shock to the finances of the world's banks caused by the U.S. mortgage meltdown.

Thousands of Britons are living a hand-to-mouth existence following five increases in the Bank of England base rate in the past year.

Home repossessions are up nearly a third on last year, coupled with a big rise in county court judgments against debt defaulters.

At the same time, banks, building societies and other lenders are radically reviewing their rules to screen out risky borrowers.

Until three weeks ago, a significant number of finance giants were throwing money at homebuyers and others without making proper checks on their finances and ability to make repayments.

This reckless approach is being abandoned in response to the situation in the U.S. and pressure from the Financial Services Authority.

A number of British lenders have axed sub-prime mortgages, which are sold to those with a suspect credit history. Mortgages where applicants self-certify their income are also being cut.

In other cases, lenders have dramatically increased the interest rates charged on these loans by as much as 2.5 percentage points. That can add £150 a month to repayments on a £100,000 mortgage.

The failure of U.S. loans to risky customers could cost as much as £50billion. The impact will make it much harder for UK banks to borrow money on the international markets on favourable terms.

This will feed through to poorer mortgage deals for homebuyers, while many would-be borrowers will be blacklisted completely.

Research by analysts Datamonitor shows the number in the "non-standard population" - those blacklisted by mainstream lenders - started to rise in 2006 after many years of decline.

Maya Imberg, financial services analyst at the group, said: "2006 saw an increase in the non-standard population for the first time in many years as the financial difficulties UK consumers are experiencing are gradually feeding through."

The situation has worsened through the first half of 2007.

• Mortgage repossessions rose 30 per cent in the first six months compared to the same period last year, taking them to 14,000, the highest level for eight years. • There were just under 250,000 county court judgments against individuals in the first three months of this year, the highest quarterly figure for a decade. • Some 63,263 individuals went bust in the first half of this year, which was up by more than 2,800 on the same period last year.

Miss Imberg said the figures "point to consumers struggling in an economic climate that is now tougher than in previous years".

She added: "High levels of consumer indebtedness are here to stay. The non-standard population will rise over the next five years as an increasing number of individuals have difficulty coping with their financial commitments.

"We forecast the non-standard population to rise from 7million in 2006 to 8.6million in 2011, driven by slightly higher unemployment, a rise in county court judgments, arrears and repossessions, and self-employment."

Mortgage expert Ray Boulger, of brokers John Charcol, said there is already evidence that those with a suspect credit history are finding it more difficult to get a mortgage.

This problem has escalated in direct response to the problems in the sub-prime mortgage sector in the U.S., where thousands have defaulted.

 

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