Secured loan market virtually disappears

This week sees another lender joining the long list of providers that have pulled out of the second charge secured loan market, leaving just Nemo Personal Loans, Ocean Money and Secure Trust Bank.

Michelle Slade, analyst at Moneyfacts.co.uk comments: "Secured loans have tended to be the realm of those with smaller amounts of equity in their home or those with past credit problems. Falling house prices has resulted in borrowers no longer having enough equity in their property to be able to take advantage of such loans.

"If a borrower's home is repossessed, it is likely to be sold at a lower level than market value and once the first charge mortgage is repaid and legal fees etc are deducted, there is likely to be little left for the secured loan lender to recoup the debt owed to them.

"As the current economic downturn continues, the demand for secured loans by second charge remains. Secured loans offer consumers the option to consolidate their debts over longer terms of up to 25 years, whereas unsecured loans only offer up to a maximum term of 10 years with seven years being the norm. This is appealing to those who wish to reduce their existing outgoings by as much as possible.

"On an unsecured loan the rate is set at outset and repayments are fixed. Most secured loan repayments move with base rate or LIBOR, but despite being in a low interest rate environment the average rate has increased from 9.9% to 12.4% in the last two years.

"Many lenders have found it is no longer a viable business option to offer secured loans in the current economic climate and we have to wonder for how long the remaining lenders will be able to survive."

Since mid 2007, 14 lenders have withdrawn from the market including:

Alliance & Leicester
Barclays Bank
Breeze Loans
Capital One Bank
First National
First Plus
igroup
LoanOne Intermediaries
Marlborough Loans
Money Partners
Paragon Personal Finance
Picture Financial
SPPL
Sterling Credit