SPECIAL FEATURE: Why now is a good time for secured loans

Robyn Hall

September 13, 2012

As consumer confidence increases but mortgage lenders remain reluctant, secured loans are now becoming an increasingly attractive option for borrowers seeking essential finance.

According to recent media reports, though it’s been five years since the Northern Rock crisis and the unravelling of the sub-prime market, banks still haven’t recovered their appetite for lending.

Today, borrowers looking for a remortgage need to have a squeaky clean application or face rejection. If your client has a low credit rating, you may as well forget it as mortgage lenders are still unwilling to lend to these “sub-prime” borrowers. However, the second charge market continues to provide these types of borrowers with refinancing solutions that currently don’t exist for them within the first charge market.

Over the past year alone, the secured loan industry has significantly opened up to the wider market with lenders like Shawbrook and Nemo improving their lending criteria by increasing their product availability. New data taken directly from our panel of secured loan lenders showed that secured loan lending to “sub-prime” borrowers increased in July; with the specialist lenders that are traditionally active in this part of the market witnessing an 18% increase in their lending figures from the previous month.

Even today’s announcement that the Government is going to relax the rules around planning permission and business expansion, presents an opportunity for secured loans to demonstrate that they are a perfect fit for both residential and commercial property owners alike.

With the financial crisis over the last couple of years leading to people staying in their properties for longer, many more have looked to improve their home rather than move and struggle with the suppressed housing market.

With interest rates at an all time low, a lot of home owners do not want to remortgage in the usual 2-3 year cycle and many have entered into fixed rates. For those looking to refinance, having to change mortgage products just simply doesn’t make sense at the moment and this is where secured loans can be a fantastic alternative.

For those wanting to extend or improve their property, a secured loan can mean that they raise the funds required without affecting their first charge mortgage product.

Secured loans come with many more attractive benefits: they not only give borrowers the ultimate flexibility, allowing for CCJs, defaults or past arrears and offer reduced rates (available from 6.9%). As well as the flexibility that comes from choosing a secured loan, there are no upfront fees and borrowers also have the option to make capital repayments or redeem early – providing a vital edge on the other refinancing options available out there.

I think these benefits are becoming more apparent too as there is distinct growth in the secured loan market at the moment. Results from our latest Secured Loan Index revealed that secured loan lending in July exceeded £30m for the first time since December 2009, and this coupled with the drop in second charge repossessions should give both brokers and consumers the confidence to look at secured loans as a viable option for refinancing.

However, whilst there is a desire to lend more, there’s no desire to be reckless and lenders still need to be convinced that the loan will improve the customer’s situation. In the current economic climate, it is more important than ever for borrowers to closely examine the refinancing options available to them and as a growing number of homeowners are unable to remortgage, secured loans should be recognised as a highly viable option to them.

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