For some businesses, Q4 is a time to take their foot off the peddle and relax, but for others it can be the most profitable time of year driven by consumer spending and the hype around the holiday season. Based on the UK market in the past, we look at some borrowing trends across different financial products.
For borrowing between businesses, there is a considerable drop in the number of deals transacted and completed in Q4. Several SMEs see the period as a way to complete their existing work and "reassess" their growth in the new year.
It is common for city slickers and bankers to indulge in the holiday season with long lunches and shorter hours. This approach seems to become manifest against several corporate industries in the UK.
The £7 billion-a-year industry of commercial mortgages and bridging finance shows a decline from October to December, with bridging trends showing a decrease of £10 million in funding in Q4 in 2015 and a decrease of £14.83 million in Q4 of 2016. This relates unsurprisingly to the slowdown of corporate offices around the end of year. Especially with property deals requiring other professionals such as mortgage advisors, solicitors and surveyors and without working at full capacity, the deal completion rate falls.
By comparison, the impact of business-to-consumer lending becomes vibrant during Q4 and, for some companies. is where they see the biggest return. For instance, the rate of households and first-time buyers applying and securing a mortgage has a noticeable increase, as many look to buy their first home in time for the holidays. The Council of Mortgage Lenders reported an increase in mortgage lending to non-business households in December 2016, up 5% from November and first-time buyers were up 9%.
With regards to consumer spending, the average UK households spend around £800 on the holiday season each year across food, presents, holidays and celebrating. This generates a huge demand for short term credit as UK households feel the pinch. Short term lender Uncle Buck reported that the timing of getting paid from work do not help this shortage of cash flow - since many employers will pay their staff an early salary in December, leaving a 6 to 7-week gap until their next payday in January.
Whilst credit card applications remained quite stable last year in the UK, consumers were fully utilizing their credit limits and going beyond. The Bank of England reported 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)
In the sub-prime lending category, the role of guarantor lending becomes popular in Q4 as low-credit customers aim to leverage their guarantor's credit rating to borrow funds. GuarantorLoans.com reported loan enquiries increased by 54% in December last compared to November with the average loan size increasing from £3,000 to £4,600.