Danny Waters is chief executive of Enterprise Finance
Here at Enterprise Finance we’ve been bullish about secured loans for some time. There’s no doubt that the market fell too far in 2008 and so it came as no surprise when more evidence emerged this week of its recovery.
In May, according to the Finance & Leasing Association, the volume of completed secured loans was 17% higher than May 2011 — and passed the £300m mark for the first time since November 2010. The FLA also noted that secured loans grew by 14% by value in the first quarter and 4% by volume.
Our own numbers confirm a solid growth trend, too. During the first half of 2012, the number of secured loans we arranged was 40% higher than in the first half of 2011 while gross lending volumes were up 55% on last year.
With the mainstream mortgage market still on the ropes — and lenders remaining ultra-conservative — it’s not hard to see why secured lending is once again becoming a viable alternative for brokers and their clients.
It’s not that the demand wasn’t always there — it has been. It’s just that in recent years the supply of secured loans has been weak. However with the arrival of new lenders, increased liquidity and renewed competition this is beginning to change.
Brokers are increasingly rediscovering the role secured loans can play and the obstacles they can help people overcome.
As a result of this we expect the secured loans market to continue to grow strongly in both the short and medium term, as the lending market becomes increasingly fragmented and diverse. Alternative finance is a major growth sector and the Government is now firmly behind it.
So when are secured loans appropriate? They can be the right option in no end of contexts, from when a remortgage is out of the question due to early repayment charges to if an adverse credit record has arisen since inception (and in this day and age, it doesn’t take much for a credit profile to become adverse).
Crucially, secured loans can be used for pretty much any legitimate purpose, such as paying for a car, holiday, home improvements or clearing credit commitments, leaving people with just one manageable monthly payment. And usefully, they may even be available to people who have had difficulty keeping up payments in the past or have a poor credit rating.
Unlike mortgages there are no up-front fees payable on application for a secured loan. There are costs associated with the application like arranging a valuation and processing but at Enterprise Finance we take care of these so clients have nothing to pay initially.
Brokers will be glad to hear that processing times are far shorter for secured loans with a typical completion time of just 2–3 weeks. Interest payments can also run for a shorter period than the client’s mortgage which can be handy.
And last but not least where applicable the broker fee payable upon completion can be added to the loan but if the loan does not proceed for any reason then the client pays nothing.