The Growth of Secured Loans

By: Jenny Longmuir

A new report has indicated that the secured loans market is in line for growth in the future. Research carried out by Datamonitor suggests that the sector is set to grow from the ?7.5 billion which was taken out in 2006 to ?10.2 billion in 2011 - indicating a compounded annual increase of five per cent.

With more people set to take out this type of loan in the future, the independent market analyst maintains that such news comes despite the global credit crunch which has seen many lenders increase the rates of interest on loans and other types of borrowing. It has been suggested, however, that the problems experienced in the sub-prime mortgage market in the United States have seen some providers withdraw from the secured loan sector either indefinitely or on a temporary basis.

One reason for the growth in secured loans is the value of properties in the UK soaring over recent years. Many have found themselves with far more equity in their homes than they expected, and this has given lots of people the ability to take out large loans over long periods and at lower interest rates. In addition to this, it is thought that increasing levels of unsecured debt have actually had a positive impact on the demand for debt consolidation loans. In fact, figures released by the Finance and Leasing Association covering its own membership base reveal that new lending over the first six months of 2007 accounted for some ?2.8 billion - a rise of 5.4% from the same period the previous year.

Commenting on the figures, Maya Imberg, an analyst with Datamonitor's Financial Services practice, said: "The US sub-prime mortgage crisis and global credit crunch will affect the market in the short-term. However, the UK secured personal loans market continues to portray an encouraging future in the long term."

Due to the rising number of defaults on sub-prime mortgages in the United States, Datamonitor has pointed out that numerous lenders in Britain are either exiting the market or withdrawing temporarily because of increasing uncertainty. However, it has been suggested that despite such withdrawals having a negative impact on the industry, there will still be a demand for homeowner loans from the public. It is also thought that loan lenders will continue to join the industry. "Some lenders will withdraw from the market for a short while before returning, thus affecting the market in the short-term rather than the long-term," added Ms Imberg.

With regard to those consumers who find that they are struggling to handle their outgoings, taking out a secured loan as a form of debt consolidation can be one way to relieve financial pressures. Research carried out by the Council of Mortgage Lenders showed that owning property is becoming more and more of a struggle for consumers as a larger proportion of their income is going towards mortgage repayments. Currently, a first time buyer will put around 20% of their income into costs associated with their mortgage, while among existing homeowners, this figure falls to 17.2%.

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