Will New Credit Ratings For Lenders Impact Borrowers?

The announcement made on 5 April 2009 by Moody’s, one of the top credit rating agencies in the United Kingdom, that the agency is preparing to reconsider the ratings for the largest building societies and banks in the country has a lot of people wondering. Will this action have some sort of repercussions for borrowers who seek a new secured loan or bad credit loan with one of the re-rated institutions?

The answer is a definite yes.

In cases where downgrades in ratings are present, there is an excellent chance that the situation will translate into higher interest rates for borrowers. Just as lenders to the institutions themselves would likely need an additional premium in order to cover the increased risk associated with the loans, the banks, mutuals, and building societies are also likely to seek the ability to raise interest rates in order to offset the additional expense.

Should the rating for a given institution remain unchanged, clients are likely to see business as usual. While there may be a shift in interest rates, it would not be due to a re-evaluation of the institutional rating. Even if the rating is upgraded rather than downgraded, there is a good chance that nothing would change.

So who would Moody’s consider for ratings re-evaluation? At present, it appears only the largest financial institutions would be involved. If you are a client of Nationwide Building Society or Barclays, you would do well to monitor any changes in ratings. Customers of smaller institutions may be able to breathe easy for the time being.

Tags: bad credit loan, Barclays, Moody's, Nationwide Building Society, secured loan