How does Inflation affect the cost of credit in the Alternative Market

By Jamie Stewart on 1st August 2017

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What is inflation?

Inflation is the rate of increase in prices for goods and services. There are a number of different measures of inflation in use. The most frequently quoted and most significant ones are the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). Each looks at the prices of hundreds of things we commonly spend money on, including bread, cinema tickets and pints of beer – and tracks how these prices have changed over time.

 

How does Inflation affect the cost of credit in the Alternative Market

After a surprise jump in march to 2.3% (the highest rate for 4 years), inflation is expected to reach 2.8% by the end of 2017.

But, as always, we need to know how that affects us, in our everyday lives, and more importantly how it affects our clients.

We have broken this down into two very simplistic parts

Alternative Lenders are driven by simple market forces; such as

The cost of Goods and Services

As lenders costs increase they will be looking to recoup that difference elsewhere (usually in the fee’s they apply)

Supply and Demand

As those costs of goods and services increase, the whole economy feels the pinch. This will result in cash flow concerns for borrowers, increasing the demand in lending. Increased demand only does one thing -> drive up prices of goods and services.

 

Conclusion

“Make hay while the sun shines”

We believe this to be the ‘glory years’ in this emerging market. With loss leader pricing and broad credit criteria. We foresee the price of credit, and associated criteria becoming tighter and more stricter as the market matures. Fix a price today, and enjoy tat rate through the lifetime of the loan.

Remember: bank of England interest rate increases do not affect the alternative market.

 

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