Financial experts were expecting 2016 to be a notable year for the secured personal loan market. With new government regulations forcing independent brokers to give equal time to second charge products, it was assumed that more people would be choosing secured loans for financing high-cost items. The numbers suggest otherwise. Still, banks are not discouraged. They are eyeing potential for growth over the next 12 to 18 months.
To say that the current second charge market is flat does not really do justice to prevailing conditions. According to Mortgage Strategy, second charge lending was down by 6% month-on-month this past February. During the 12 months ending in February, it was down roughly 2%.
Mortgage Strategy contributing author Steve Harness attributes the flat market to two key factors. First are the charges that go along with some second charge products. Harness specifically mentioned broker fees of thousands of pounds that could be upwards of 7% of a loan.
The second factor, Harness says, is that of brokers outright dismissing second charge products and focusing mainly on primary mortgages and refinancing. Apparently, they are reluctant to put together more attractive second charge products that meet consumer needs without having to refinance.
Competition Could Be the Key
We can speculate all day as to why the secured personal loan market has been flat over the last 12 months. But it might be more helpful to consider what could bring much-needed growth to this industry. At the top of the list is competition. In simple terms, banks are looking for new ways to attract borrowers hoping to finance large purchases.
Consider the fact that banks are slowly but surely upping the amount they are willing to offer on personal loans. According to This Is Money, one well known bank recently announced a £50,000 personal loan at 6.7% and up to 84 months. That amount of debt unsecured by any collateral is unheard of. That's how desperate banks have become.
So why would anyone choose a secured loan over an equally large unsecured loan? Think of it in the context of a single word: interest. A borrower might be able to get a personal loan for tens of thousands of pounds unsecured by any collateral, but a rate of more than 6% is pretty steep. That same consumer could get an equally valuable secured personal loan with an interest rate closer to 3.5%. Just one percentage point could translate into thousands of pounds in interest.
The point of bringing up the difference between unsecured and secured personal loans is to simply illustrate the competitiveness within the retail banking sector. If banks are willing to bite the bullet on large unsecured personal loans, it's only a matter of time before they start offering some new and very good deals on secured loans. Competition will drive them there.
An Opportunity for You
The fact that the market remains flat is good news for you as a consumer. A flat market translates into lenders just looking for people they can loan to. With a decent amount of equity and a good credit history, you can get a very good deal that will allow you to borrow tens of thousands of pounds to remodel your home, take a once-in-a-lifetime trip, finance the start-up of new business, or anything else you need the money for.
The banking sector is eyeing growth for the secured personal loan market in the coming 12 to 18 months. You could be a beneficiary of that growth strategy by shopping around for the best secured loan deal you can find.
1. Market Strategy – https://www.mortgagestrategy.co.uk/secured-loans-watch-flat-market-scope-growth/
2. This Is Money – http://www.thisismoney.co.uk/money/cardsloans/article-3838478/First-Direct-offers-50-000-personal-loan-battle-borrowers-heats-up.html
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