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The sleeping giant stirs

David French

September 8, 2007

We read a lot in the press these days about secured loans and, of course, much of the noise is being made by the secured loan providers. However, this should not detract from what is an important message. I have been personally involved with secured loans in three different contexts; as an ex-mortgage broker, as a software provider and most recently, as a customer.

You hear a lot about how secured loans or second charge lending can be considered best advice for a borrower who has a fixed or discounted rate mortgage with penalties for early redemption. However, there are several other scenarios where a secured loan makes a lot of sense.

Reducing the impact

When I was a mortgage broker, I was in contact with borrowers whose credit rating had recently deteriorated and who required access to extra borrowing to pay off several unsecured loans and reduce monthly outgoings. If they were to remortgage and borrow additional funds, the entire new mortgage would have been calculated taking into account the poor credit rating. By using a secured loan only, the additional borrowing would be subject to the adverse rates, reducing the impact of the higher rates. This presumes that the client can, of course, afford the payments. I am relieved to say that this has never personally affected me.

A much less unpleasant scenario is when a client requires a significant sum of money in a very short time frame. Second charge borrowing can often provide much needed funds in very short turnaround times. If the circumstances are right and a broker can act as the catalyst to this type of borrowing, it is entirely reasonable that a client would be prepared to pay an appropriate fee for the service in arranging the required loan.

The other scenario that I can draw personal experience from is where the borrower’s circumstances have recently changed, for example, becoming self-employed or starting a new job. In this situation many lenders refuse to remortgage a loan arranged prior to the change of circumstances, and if as, in my case, there was a requirement for additional funds then the lender is utterly unwilling to assist. I was left with one obvious route and that was to take out a secured loan.

I was able to arrange a capital repayment secured loan with my own bank over 10 years and although the rate was competitive the short-term and the resultant capital payments certainly made me focus ever more effort in striving for success in my chosen profession. After just 12 months, the time was right to enquire about a potential remortgage. There were two main reasons for this. Firstly, the fixed rate that I had previously enjoyed had expired and like many others I found myself emerging from a two-year fixed rate onto a far less favourable standard variable rate, and secondly the tie-in period had also expired meaning that I was free to change or remortgage onto another attractive rate.

Brand new customers only

At this stage my first point of contact was my existing lender. However, it either could not or would not offer me a headline rate, as it only offered these rates, as the advert says, to ‘brand new customers only’. I was forced, therefore, to look further afield, and employed the services of an independent broker.

I had been introduced to a chap from a large national network of advisers by my bank manager who had been unable to offer me the sort of rate I wanted. This fellow said that he would be able to refinance my existing mortgage and incorporate the secured loan borrowings as well. He wanted to charge a fee for his services, and as I used to charge fees when I was still broking, I regarded this as entirely reasonable. We agreed on a figure and he set to work. Within a couple of days I had an agreement-in-principle, and approximately a week later, after a brief drive-by valuation by the lenders’ valuer, I had myself an offer.

I have to admit the entire process was a lot easier and quicker than I expected, and I was pleasantly surprised by the whole affair.

Waking up to the benefits

It would seem as if the professional mortgage market had at least woken up to the benefits of secured lending, and this inspired me to some extent in promoting the development of a secured loan module to our own offering. Recently even the largest providers have entered into the market with secured loan sourcing modules.

It has never been so easy to research, recommend, apply and process secured loans; brokers are rightly interested in the opportunities presented by secured loans, and several specialist secured loans brokers have emerged. The evidence points to this type of lending entering the mainstream and becoming an increasingly useful tool in the broker’s arsenal. Brokers can now employ the latest technology to both simplify and speed the process of advising and applying for secured loans and ensure that their clients benefit from the best advice and rapid service.

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