Decline In Secured Loans Market

Fri, 11 Jul 2008

The secured loan market is fast deteriorating as lenders continue to withdraw from the market, an industry expert has claimed.

According to financial website Moneyfacts.co.uk, eight lenders have withdrawn from the market since July 2007, including Alliance and Leicester, Capital One Bank and Money Partners, with more predicted to suspend lending in the near future.

Earlier this week, Barclays followed suit by announcing the closure of its First Plus second charge mortgage business, one of the largest in the UK .

"Unfortunately, many lenders are no longer finding secured loans a viable business option," explained Moneyfacts analyst Michelle Slade.

"They face the same funding issues as mortgage lenders and with house prices continuing to fall, lenders can no longer be sure that, if a consumer defaults on their loan, they will have enough equity in their home to repay the debt ."

With many analysts now predicting a 30 per cent drop in house prices, there may be little equity left for secured loan firms after repaying the mortgage lender and fees in a repossession case.

Meanwhile lenders still operating in the secured loan market are also starting to restrict their product range and raising rates to compensate for the risks involved.

"If the credit crunch can cause one of the biggest lenders in secured loans to throw in the towel, it will be interesting to see if the other providers can weather the storm", Slade added.
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