The second charge mortgage market is growing rapidly and is set to value £22bn annually by 2008. According to a report, UK Secured Lending 2003, conducted by market analyst, Datamonitor.
Advances last year amounted to £14.4bn up from £10.5bn in 2001, with the average loan value above £20,000.
Alex Boorman, financial services analyst at Datamonitor, and author of the report, said: ‘Although economic conditions will remain fairly steady, interest rates will rise. As this happens, more consumers will struggle to meet repayments on their unsecured debt. Debt consolidation will therefore account for a larger share of total secured loan gross advances.’
Bob Sturges, communications manager at lender, igroup, said: ‘£22bn is achievable. We have seen our business grow at those sorts of rates, if not more so. Individual lenders are seeing more rapid growth and because Datamonitor takes a market average some of its predictions are fairly cautious.’
The report cites GDP growth, low interest rates and low unemployment encouraging consumers to borrow. In 2002, the average UK adult had more than £3,800 in unsecured debt and debt consolidation accounted for more than 60% of secured gross loan advances.
Datamonitor noted that this is the type of secured loan usage that the industry promotes heaviest in its advertising. The industry is currently spending £41m annually on promoting the loans.
Although the sector will not come under FSA rule in 2004, both Datamonitor and igroup expect a review of the Consumer Credit Act, currently underway, that will see the financial limit of credit agreements covered by the Act, presently £25,000, raised or even removed.
‘Our belief is that the Office of Fair Trading is looking to make changes to dovetail with the FSA taking over in 2004. Our understanding is that it will be revised to remove the £25,000 ceiling. To our minds, this would make sense, but lenders are in this for the long term, and would not disadvantage customers by taking advantage of loopholes in regulation,’ said Sturges.