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Consolidation is the key

Grant Bather

March 29, 2008

Secured loans have undergone somewhat of a renaissance over recent years.

With many unable to move up the property ladder, an increasing number of borrowers are opting for home improvements such as extensions, renovations or transforming garages into habitable areas as a way of adding value to their home.

To obtain the initial funding, many borrowers are now realising the benefits of a secured loans option through which the customer is able to access a set amount enabling them to make changes.

In the current climate, with more borrowers worried about the economy and the state of their own finances, purse strings are being tightened and it is expected that there will be a drop in house purchases throughout 2008.

While talk of a recession is a step too far, it is evident that there will be a downturn in the market – further exacerbated by the fact that over one million borrowers will be looking to remortgage but will be forced onto higher rates; and sometimes the lender’s standard variable rate.

A marked increase

Recent research by MoneyExpert.com suggested that there had been a marked increase in consolidation of borrowers’ debt, with the organisation stating that over six million Britons had been forced to seek out a more cost-effective way to manage their borrowing. It reported that over one million borrowers had consolidating debts in excess of £20,000.

Responding to the study, Sean Gardner, chief executive at MoneyExpert.com, commented: “It is encouraging that so many people have taken action – with average standard credit card rates at 17.01 per cent compared to average unsecured loan rates of 8.44 per cent, it is clear that borrowers can cut their monthly interest bill by moving.

“However, it is crucial that borrowers see consolidation as a wake-up call to get debts under control. It shouldn’t be something they keep on doing simply to tide them over from year to year.”

Extra prominence

While traditionally people were looking at secured loans as a way of bettering their position and improving their property and financial standing, in the current climate secured loans have taken on extra prominence.

Recent changes to the Consumer Credit Act (CCA) and by companies operating in this field to improve their commitment to and the reputation of the sector, has helped to sway brokers’ opinions of the once maligned niche.

By abolishing the limit on ‘regulated’ business, the changes to the CCA have helped to improve confidence in the market and have bought it under greater regulatory scrutiny, which can only be a good thing.

Previously, having a limit of £25,000 before regulation, the abolition of this law has done much to sway brokers’ interest in the market. But with the continuing liquidity crisis, anything that can be done to improve intermediaries’ revenue streams will be looked upon favourably.

While there has been much talk of various companies merging, the emergence of secured loans solutions for borrowers as a means of consolidation must not go unnoticed.


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