Second charge loans continue to be more and more important in the market. Marcus Reeder CEO of AtPledge Ltd gives his view on the market.


2015 is proving to be important for secured loans. With competition increasing, there are many more products in the market and a range of interest rates depending on the borrowers suitability for the loan. The market saw £66 million of transactions in January 2015 up 11% on the year before.
 
Previously the industry had a bad reputation with high settlement charges and interest rates, but now this does not apply. The interest rates charged by the Wonga’s of the pay day loan industry are on the way out and secured lending rates generally are no more than credit card rates and can be much less.

Changes

– Interest rates are lower.
– The FCA regulates the sector.
– With lower rates secured loans can replace mortgages and other traditional loans.
 

What are secured loans being used for?

Secured loans are a good solution for customers who don’t want to re-mortgage for whatever reason, and consequently the growth in the 2nd charge has been meteoric.
 
Many are locked in to cheap tracker and fixed rate mortgages which they don’t want to lose the benefit of but want to borrow more, so 2nd charge works.
 
Also, despite the government’s efforts to make sure that customers could move loans without proving income, traditional lenders are ignoring this, which means people, are trapped in their homes. In this instance the 2nd charge loan is all-important as it can provide funds to extend and modernise the home you are in.
 
Another circumstance is when customers have interest only loans or may have issues with age preventing the traditional mortgage. For these people the 2nd charge can be an absolute lifeline.

Short-term lending and bridging

Secured lending is now an effective short-term to medium term lending choice.
Bridging finance can be expensive but secured loans can offer a cheaper and safer alternative particularly when repaying the bridging loan can be a risk.
 
Second charge loans normally have lower early repayment charges and are being used by some as temporary options whilst they wait for income to improve through finding a better-paid job for instance.
 
This applies particularly to the self-employed where they have good and bad years. Most will know when a good year is coming, but may have to wait to get the best mortgage rates until the can prove it with audited accounts.
 
Those in their jobs for short periods of time may also benefit, and those with poor credit and CCJs, where the credit history disappears after time can use the 2nd charge loan as a stop gap until they meet the criteria to apply for a mortgage.
 
In general secured loan criteria tend to be more lenient and therefore can be used to cover a period of time when a mortgage would be impossible to get.

Large loans

2 years ago the largest secured loan available was only £150,000, now many lenders are prepared to loan up to £2 million with out any problem at all, provided that you meet the lending criteria.
 
With this dramatic growth in loan size the average secured loan is now well in excess of £50,000.

The future

In less than a year, mortgage brokers will be offering secured loans as well as remortgages using the same FCA regime and have to know all the rules and regulations so as to be able to advise a client correctly.
 
This will make the 2nd charge market even more active and will lead to a large growth in lending.
 
If you would like any more information on secured loans, why not give us a call today on: 0800 810 1111 or 01604 901101 or contact us online.