For UK consumers with the lowest credit ratings (referred to as "sub-prime"), the lending market contractions seem much more severe; since 2019, the number of loans granted has decreased by 76%. This dramatic drop coincides with the market removal of numerous guarantor loans and expensive short-term lending products due to a mix of regulatory and business factors.

The results are from the most recent ClearScore whitepaper, "Building a Non-Prime Lending Market that Delivers for UK Consumers," which illustrates how credit availability has been worse recently using data from EY.

Guaranteed loans to subprime borrowers have decreased by 99.6% since 2019, as have expensive short-term credit loans, which have decreased by 96%, and house credit loans, which have decreased by 91%.

With subprime consumers having access to fewer and fewer authorized credit options, unregulated lending has increased. This includes buy now, pay later (BNPL) loans and, in certain cases, illicit money lending. In October 2023, nearly 20% of unserved consumers using BNPL were already behind on their payments. Since 2021, the percentage of BNPL loans to unserved clients (those with access to zero loans) has increased by 53%.
 

Putting change into action

The UK government and regulators are advised to support and expand access to the regulated market by the ClearScore whitepaper. Suggested actions comprise:
 

• establishing a well-defined plan and goals for a healthy non-prime lending industry in order to regain investor trust and provide more people with access to regulated credit.
• An assurance that the cost of credit would be reviewed in order to better inform consumers about the true cost and to pique lenders' and investors' interest in providing short-term loans to non-prime borrowers.
• In order to enable better lending decisions and give customers better rates, we are collaborating with the Financial Ombudsman Service to bring more clarity to the open banking underwriting process for higher-risk borrowers.

"Vulnerable consumers are already being denied access to credit."

"The non-prime lending market is broken, creating a dangerous situation where already vulnerable consumers are being shut out of access to credit," stated Andy Sleigh, COO of ClearScore. At ClearScore, we think that every person should have access to credit that is both reasonable and suitable for their particular situation.

However, due to the ongoing compression on living expenses, these individuals are being pushed toward unregulated, occasionally expensive solutions, which may have detrimental long-term effects on their general welfare and financial resilience.

"Too much time has been spent ignoring the issue. In order to create a fair, accessible, and sustainable market that improves outcomes for all consumers throughout the credit spectrum, the government and regulators must take the initiative.

"The UK consumer credit market has seen a decline in choice for consumers in recent years, especially for those considered to be at the 'higher risk' end of the scale," stated Christopher Woolard, partner at EY and chair of the EY Global Regulatory Network.

"This study shows that more needs to be done to support people who require financial access. Regulators and the UK government have acknowledged the need to take action and implement improvements, but this study indicates that more has to happen quickly. For the non-prime lending industry, the UK requires a long-term plan that combines governmental and private sector initiatives to restore confidence and increase access to regulated credit.