Demand for personal loans in the UK is set to continue expanding despite the global credit crunch, a report says.

A record £7.5 billion was advanced in unsecured loans during 2006, after a difficult year in 2005 when greater economic and housing market uncertainty dampened people’s willingness to borrow, market analyst Datamonitor said.

But lending soared by 16.3% last year as resurgent house prices and a pick-up in economic growth acted as a stimulus to the market.

Rising levels of unsecured debt also helped boost the market, increasing demand for debt consolidation loans, while the sector also benefited from increased consumer spending.

The group now expects the market to grow by 5% a year, with total advances reaching £10.2 billion in 2011.

It said defaults on US sub-prime mortgages, which lend to people who would be turned down by mainstream groups, had affected a number of lenders and investment banks in the UK, while the global credit crunch had also made it more difficult for lenders to access finance on the money markets.

This has caused many lenders to review their strategies and re-assess the risk they are taking on, with firms likely to tighten their lending criteria as a result of the increased cost of borrowing, Datamonitor said.

But despite this, the long-term outlook for the market remains good.

Author of the report Maya Imberg said: “The US sub-prime mortgage crisis and global credit crunch will affect the market in the short term.

“However the UK secured personal loans market continues to portray an encouraging future in the long term.”

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