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A number of smaller UK loan companies have been announcing reorganisations to their businesses this month since the worrying credit situation that started in the US a few months ago began to have a real impact in the UK. A selection of loan and mortgage brokers including Kensington, Enterprise, Black and White, GHL Group, GE Money and E-Loan have all announced reductions in staffing levels. The situation has been worse in other firms such as National Guarantee, Welcome Mortgages and SPPL who have either shutdown completely or stopped providing certain types of loan products.
The moves are all part of the fundamental changes that are impacting the lending part of the financial sector. Whether these changes are permanent remains to be seen, but there is no doubt that some sections of the sub-prime credit market have contracted significantly, leaving less business and smaller profits for firms to chase. Firms that can adjust to the new regime have a chance of survival but those that are slow to act may find themselves with little option but to shutdown as market conditions become more difficult.
In the past loan providers have not made their profits evenly across their customers but have generated more money from providing loans to customers with adverse credit histories, leaving clean credit applicants to receive cheaper, less profitable deals. Because funds for sub-prime lending are now more difficult to secure, that profitable sector of the marketplace has been cut short, meaning that rates will need to increase for everyone else.
Many lenders will turn to a fee-charging model, in much the same way that most mortgage providers work today. There will be less reliance on the sale of payment protection policies in the future and although these are still required by some people they are likely to represent much better value for money.
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