Millions on credit blacklist systematically denied loans

More than 20 per cent of adults are barred from buying a house or car on credit because they are blacklisted by lenders, a report published yesterday showed.

The market analysts Datamonitor said about 7.8 million people were systematically refused loans by banks, building societies and finance houses despite record low interest rates and unemployment. Although the number of blacklisted adults had fallen by about 300,000 since 1998, the gulf between rich and poor could be further narrowed, the report said.

Researchers said the main obstacles to gaining large loans were experienced by the 6 per cent of the adult population without a bank account, the self-employed and those with county court judgments against them for debt or those declared bankrupt. People without bank accounts blamed a lack of branches outside city centres, poor credit history, money required to open an account and identification.

Alex Boorman, Datamonitor's financial services analyst, said people without a bank account remained an "important component" of the economic landscape despite government initiatives, supported by high street banks, to encourage benefits recipients to open current accounts.

The report said Britain's 3.2 million self-employed people continued to suffer discrimination by lenders, who commonly require three years' employment history and scrutiny of their records by an accountant.

There has been a rise in self-certification mortgages for self-employed people but otherwise more reforms were needed to help the Government's aim of boosting the number of self-employed other than through tax benefits. Mr Boorman said: "Self-employment remains a barrier hindering access to credit offered by mainstream providers."

Datamonitor said the number of county court judgments had fallen in the past 10 years, partly because of improving economic conditions but also due to a more lenient approach to debt recovery. In 2001, judgments were made against 700,000 consumers compared with 1.2 million in 1995.

Mr Boorman said a bona fide lending market had emerged in recent years to spare disadvantaged consumers the astronomical rates of loan sharks.

The value of mortgages approved to those previously considered credit risks has almost doubled to £15bn in the past four years as conventional lenders have seen their profits squeezed during the competition of the housing boom.

Banks and building societies have established dedicated offshoots to cater for "non-standard" customers who are charged higher rates and excluded from flexible loans to reflect the higher risk.

The Consumers' Association forecast that some homeowners would struggle to repay mortgages at the punitive higher rates under so called "risk-pricing".

Mick McAteer, senior policy advisor at the Consumers' Association, said: "Access to credit will become one of the biggest policy issues of the coming year as the economy slows down and people find it more difficult to deal with mainstream lenders." The association believes legislation may be required to create American-style institutions that use their credentials to act as an intermediary between the financial markets and credit unions dispensing loans.

A spokesman for the British Bankers Association said: "There are some people who simply should not borrow. It is not in our interests to lend to these people because we might not get the money back.

"A significant proportion of those excluded for loans are likely to be more successful in gaining loans through credit unions, which the Government is trying to extend."