Secured Loans : The Future

By Michael Strauss

It's now well established that we're living in uncertain economic times, and that the finance industry as a whole is facing a difficult future. Banks are reining in their lending, and trying to reduce their exposure to bad debt in the face of a looming recession.

It's getting ever harder to get a new mortgage deal or a remortgage at a decent rate, and this is spreading to secured loans as well. One major secured lender, First Plus, have announced that from August 8th they will no longer be seeking new customers, and will be effectively winding their business down as existing borrowers reach the end of their repayment terms. If such a large lender as First Plus, who are owned by Barclays, are feeling the pinch, then is there any future for the secured loan market?

Credit Crunch, Property Prices, and Economic Slowdown

There are two basic problems facing secured loan lenders. Firstly, the infamous credit crunch has meant that they have less access to cheap credit themselves, and so can't sell it on to customers at a profit. This has seen rates rise across the board, making secured loans less attractive.

Secondly, secured lending is becoming ever riskier. Falling house prices mean that there isn't as much security or equity available to back the loans, and a worsening economy means that more people are having financial difficulties and so bad debt is rising.

Customer Profiles

This is made worse by the fact that many secured lenders specifically targeted customers with credit problems, making great play on the advantages of debt consolidation. Unfortunately, these are the very customers who are finding things most difficult in the economic slowdown.

This isn't to say that secured loans are dead and buried - far from it. However, as lenders try to protect their profitability, the trend towards higher interest rates and smaller sized loans in relation to property value is likely to continue, at least until the future of the economy looks more settled.

Related Articles:

• Choosing a Secured or Unsecured Loan
• How Will Falls In Property Prices Affect Loans?
• Loan Basics : Secured Loans
• Secured Loans : Approach With Caution