But in recent months they have finally started to bounce back, and secured loans are going from strength to strength.
With the conventional mortgage market still stagnant, it’s easy to see why secured lending is very much back on the radar for brokers.
Sense of momentum
In May, according to figures published by the Finance & Leasing Association (FLA), the volume of completed secured loans was up 17% on the previous year.
For the first time since November 2010, secured loan numbers passed the £300m mark, too. The FLA also said that secured loans rose by 14% in value during the first quarter and 4% by volume, adding to the sense of momentum in the sector.
Our own numbers also confirm the resurgence of the secured loans sector. In the first six months of this year, we arranged 40% more secured loans than we did in the first half of 2011, while gross lending volumes were also 55% higher relative to the same period last year.
The irony is that the demand for secured loans has always been very strong – the issue, as ever, has been one of supply.
Lenders have been running scared but are now starting to play ball again. The emergence of new lenders has also injected liquidity and competition into the sector.
Why secured loans?
Secured – or ‘second charge’ – loans can be appropriate in many different situations, and are especially common either when a remortgage is unadvisable as a result of early repayment charges, or when a poor credit record has arisen since inception.
They can be used for all kinds of different things, including:
• Buying a new car
• Booking a luxury holiday
• Home improvements
• Consolidating loans or credit cards into one manageable payment
• Paying a tax bill
• Giving children a deposit for their first home
Usefully, secured loans can often be taken out by people who have had difficulty keeping up payments in the past, or who have a poor credit rating.
Number crunching
Secured loans generally start from £5,000 and go up to £150,000, with terms ranging from 5 to 30 years (payment holidays are often available).
In special cases it’s possible to get more than £150,000 – with loans upwards of £500,000 sometimes available.
Employed applicants can generally get up to 85% LTV, while self-employed applications are usually up to 75% LTV.
Interest rates on secured loans generally range from 6.9% to 14%, although this will naturally depend on the size of loan and the credit profile of the applicant. Clients can choose whether to opt for fixed or variable rate loans.
Unlike mortgages, there are no up-front fees payable on application for a secured loan.
There are costs associated with the application, such as arranging a valuation and processing, but at some firms they are rolled into the monthly loan payments.
Quick to complete
Brokers will be glad to hear that processing times are far shorter for secured loans, with a typical completion time of just three weeks. Interest payments can also run for a shorter period than the client’s mortgage, which can be handy.
It’s worth noting, too, that the ERC on a second charge mortgage is usually just one month’s interest, so nothing too punitive.
All in all, secured loans are definitely worth a look and should be on all brokers’ radars – especially now that there are a raft of new lenders on the scene.
Danny Waters is CEO at Enterprise Finance
