Since the 2008 financial crash, Banks have change many of the regulations and have become a lot stricter on who they lend money to which means more and more people are now struggling to get loans or mortgages.
Why is it so bad to lend to everyone?
One part of the financial crash was due to many people defaulting on their loan repayment. Strict criteria for any bank loan is to check a persons income, other existing debts and credit score history to give a full account of whether they are able to make the repayments. Furthermore if you want a mortgage, banks will now expect you to have at least 20% deposit and first-time buyers must typically save for eight years to afford a deposit to buy a home https://www.bbc.co.uk/news/business-42565427
Should banks help businesses?
It is crucial for the economy, for industry to thrive and to create more jobs is for the banks to lend to business whether it’s for new start up or to prop up business when they hit a rough patch. However as 8 out of 10 start businesses fail within the first 18 months, according to Bloomberg this makes it extremely risky for banks to lend money to.
Obviously banks cannot lend money to everyone as it will put banks into a dangerous risky position. Big high street banks are primary there to make huge profit for their shareholders. So where can people go to get a loan if people can’t make the strict criteria?
Maybe the alternative is Credit Unions - They are not-for-profit cooperative financial institutions owned by members. They offer the same services as banks, but the profit cycles back to members instead of stockholders. Their goal is to help members with new opportunities like a new startup or expanding current business as well as lending for a new home but at a lower rate of interest while investing back into communities. https://www.moneysavingexpert.com/loans/credit-unions/ In comparison to traditional banks these institutions have managed to survive far better in the financial crisis.
Nevertheless, banks role in providing funds to people and business is crucial for a society to thrive. So who will do it and how will it be done in the future is the key. Big banks, the government? Or being a member of a Credit Union- will it be us?