Lenders shy away from secured loan sector

  • Story by: Sharon Flaherty
  • Magazine: FTAdviser
  • Published Friday , July 11, 2008

The number of lenders withdrawing from the secured loan sector is on the increase with eight having pulled out of this market since July last year.

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The latest lender to withdraw from the secured loan market is First Plus who this week (8 July) announced it is to stop new second charge mortgage business from 9 August.

However since July 2007, arguably when the credit crunch started to hit the UK, the Alliance & Leicester, Breeze Loans, Capital One Bank, LoanOne Intermediaries, Money Partners, Picture Financial and SPPL have also pulled back from secured loans despite demand for the product.

Commenting, Michelle Slade, analyst at Moneyfacts.co.uk, said secured loans are appealing to those who want to reduce their existing outgoings by as much as possible as they offer the option to consolidate debts over 25 years compared to 10 years for unsecured loans.

"Unfortunately, many lenders are no longer finding secured loans a viable business option.

"They face the same funding issues as mortgage lenders and with house prices continuing to fall, lenders can no longer be sure that, if a consumer defaults on their loan, they will have enough equity in their home to repay the debt.

"If the credit crunch can cause one of the biggest lenders in secured loans to throw in the towel, it will be interesting to see if the other providers can weather the storm," she added.