Secured option can benefit debtors

The level of consumer debt in this country is a concern. The rate of growth and the level of average indebtedness are two good reasons to worry.

Unsecured debt in the UK stands at more than 1bn, a hefty sum indeed. But there is no need for panic as interest rates are benign and movements, if they occur, should be no more than a quarter point. So with the ship steady in that regard, consumers have cause for comfort on the interest rate front at least.

But with the mortgage market so buoyant there is plenty of scope for people with unsecured debt to consider alternative options. Refinancing via remortgages or second mortgages are options that should be considered. In many cases customers could save significant amounts of money compared with the repayments on much more expensive unsecured loans.

Remortgages provide the opportunity to improve borrowers’ overall deals and settle outstanding debts. Second mortgages may be more flexible where shorter terms are required. For prime and sub-prime customers there have never been more options. This is proof that the UK market offers flexible and value for money products, and explains the growth of the second mortgage market to some extent.

But some recent changes surrounding the regulation of secured lending may be having a positive effect. The now defunct and unfair Rule of 78 has been swept away in favour of a month’s basis of early repayment. It seems that consumers are responding positively to these changes, which is particularly important in light of the fact that many secured loans are repaid early. Secured loans are now far more attractive as an option than they used to be for people with credit problems.

I shy away from the more incendiary phrases such as debt mountain or time bomb as they add little value. Headlines of that nature make good copy in daily newspapers but they do nothing to help consumer confidence.

At the heart of the credit debate is the ease with which credit is granted. Is credit too easy to obtain? Ask yourself what your experiences have been in applying for credit. Compare and contrast your clients’ experiences. A clear picture will begin to emerge.

The problem of unsecured credit has always existed to some extent. The difference is that there is a lot more available nowadays. There are a multitude of flexible options for customers who want to reduce their outgoings. The refinancing market is going to be a good sector to be in during the coming months.

As always, mortgage brokers will be at the forefront of providing sound advice for clients who have taken on too much credit.