There’s no doubt that we live in strange economic and financial times, with consumer debt now at a record high and households spending around £900 more on average than they receive in income.
It’s therefore interesting to note that as the household debt level has increased, so too has the number of self-employed people in the UK. Since 2001, this number has increased incrementally to account for 15% of the British workforce, but typically people who work for themselves find it hard to secure credit from lenders.
So, why have we seen the levels of borrowing increased in recent times, and why do we need to take out lines of credit at all? Let’s take a look:
Why do we Need Credit?
While borrowing money is often discussed in negative terms, we must remember that lending plays a key role in any functional society.
This is particularly true in the case of secured lending, such as mortgages or financing agreements. This type of borrowing allows you to invest in important assets that you’d otherwise be unable to afford, such as property, cars and similar big ticket items. In this respect, secured lending helps generations to achieve traditional financial goals, without forcing them to spend outside their means.
Since the Great Recession, unsecured and personal lending has also become central to the fabric of society, by offering greater flexibility to customers and helping them to overcome relevant macroeconomic challenges such as rising inflation and stagnant wages.
To achieve this, lenders have created a more diverse range of financial products, including loans aimed at people with poor or limited credit histories.
How Borrowing has Risen as the Labour Market has Changed
As we can see, the lending market has adapted to the needs of customers, who may be finding it increasingly difficult to save and cope with the rising cost of living.
Lenders have also been forced to adapt to the changing circumstances of customers, with self-employment becoming an increasingly popular method of working. This is a very real trend, with around two million freelancers active in the UK and more than 50% of the U.S. workforce expected to be self-employed within a decade.
In order to meet the needs of self-employed people and maintain as large a customer base as possible, lenders have relaxed their criteria and made their products more accessible. Many no longer require applicants to produce three years’ worth of accounts, with building societies such as the Halifax asking for just 12 months’ proof of income.
This is not only good news for lenders, but it also means that people who choose to work for themselves are not restricted when it comes to borrowing secured or unsecured funds. After all, there’s nothing wrong with taking out positive credit, and you should be able to apply for this whether you’re self-employed or not.