Rapid Rise of Secured Loans

The UK secured loan market has grown from £19.8 billion in 2002 to £28.1 billion a year later, a leap of 42%, and will continue to boom, according to Datamonitor's new report, 'UK Secured Lending 2004'.

The number of secured loans grew from 380,000 in 2000 to just under a million in 2003, while the average value per loan has increased from £16,900 to £28,100, according to the report, which forecasts further rapid growth of 82% to £51bn (from 1.4m loans) by 2008.

Secured personal loans are second charge loans, also known as homeowner loans, second mortgages or debt consolidation loans. They are secured on the borrower's property, usually their home, which is therefore forfeit should the borrower default on the loan agreement, as with a first charge loan.

Datamonitor says that secured loans have come to the fore as a debt consolidation tool, because they offer relatively low interest rates: personal debt is soaring, with total outstanding UK consumer credit balances reaching £175.6 bn in 2003, an increase of £17.8 billion over 2002. This is equivalent to an average £3,736 of outstanding personal debt per adult. According to the FLA (Finance and Leasing Association), 63% of total advances of secured loans granted by FLA's members in 2003 were for debt consolidation.

According to report author and Financial Analyst Karina Purang, 'customers need to be careful as they may be turning non-priority debts into priority ones. While repayments on unsecured loans such as credit cards can be postponed, it is not the case with secured lending. Ultimately, if they can't succeed in doing so, they could end up with a County Court Judgement against them or losing their property'.

The growth opportunities offered by the secured lending market are attracting mainstream lenders: Halifax for example started offering secured personal loans to non-Halifax customers in 2002 and there is an indication that more mainstream lenders may join the market. 'The entrance of such players will probably benefit secured loan customers in terms of more competitive prices, and more products available' says Purang.

The firm's web site is at www.datamonitor.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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