The Economics of Borrowing and Lending during Christmas and Q4

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Daniel Tannenbaum

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Whether it is business or consumer finance, the economics of borrowing and lending changes drastically in the UK during the run up to the Christmas. But to what extent? We investigate below.

Property Funding in Q4

From a B2B perspective, there is a notable slowdown in the number of enquiries and deals transacted based on potential borrowers preferring ‘to wait for the new year.’

In the business world, the Christmas period oozes the feelings of work-dodging and clock watching. A combination of early finishes, company socials and annual leave causes overall productivity to fall and this multiplies across other industries and organisations.

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Specifically, for products such as commercial mortgages and bridging products, there is the necessary involvement of other parties such as surveyors, solicitors, mortgage advisors and banks. But with all taking it easy in Q4, it subsequently leads to less funding. Notably, Bridging Trends showed a decrease of £10 million in funding in the bridging sector in Q4 in 2015 and a decrease of £14.83 million in Q4 of 2016.

From the consumer angle, some see the upcoming yuletide as a deadline to secure their dream home, with The Council of Mortgage Lenders reporting an increase in mortgage lending to non-business households in December 2016, up 5% from November and first-time buyers up 9%.

Business lending ‘softens’ in Q4 

A similar slacktivist approach ensues for SME business owners (those with turnover of less than £25 million). The strategy to review growth in quarters and reassess in the new year was confirmed by the Bank of England’s report showing that business lending ‘softened’ over the three months to November 2016 and December was very much the same. (Source: Bank of England, Credit Conditions Review Q4, 2016, P.11)

Consumer Credit Increases Big Time in Q4 

Unquestionably, the popularity in consumer credit increases in the run up to the Christmas season. This includes increased purchases on buying gifts, festive meals, socialising and holidays. Some argue that there is a demand for home improvements and refurbishments for those looking to entertain family and friends in time for December 25th.

Whilst reports showed that the applications for credit cards remained quite stable, the amount of borrowing that customers did on them was enormous, with the Bank of England reporting an increase in default rate from 4.4% in Q3 to 24.3% in Q4 (Source: Bank of England, Credit Conditions Survey Q4, 2016, P.8)

Speaking to a representative from UK’s leading money lender, Uncle Buck, he said that “We typically see an increase in applications and online visitor traffic by 15% to 20% during the Christmas period. This is largely due to an increased in consumer spending so we also have to restrict our lending criteria to account for a higher default rate.’

‘There is also the fact that many employers will give their staff an early pay-slip and Christmas bonus in December, but with their next pay cheque not until late January, they can go 6 to 7 weeks without pay. Hence, there is demand for short term finance, even if it is just a few hundred pounds to see them through the month.”

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