WHAT ARE THE BIGGEST CHANGES YOU HAVE SEEN IN YOUR 25 YEARS IN THE SECURED LOANS BUSINESS?
The first serious lender in the 1970s granted loans up to 90% LTV. Happy days, hopefully soon to return. Apart from the credit crunch the biggest recent changes occurred when all loans on residential property became regulated and Rule of 78 redemptions were replaced with one to two-month interest. Simultaneously, market and regulatory pressures spelt the end of lump sum payment protection insurance – that was a significant income stream for lenders.
DOES THE FALL IN THE NUMBER OF LENDERS HERALD THE END OF THE SECURED LOANS SECTOR?
No. Plenty of lenders are waiting to re-enter the market. The product provides a valid solution for many people and if lenders are allowed to match rate to risk there are profits to be made. But to aid recovery we must focus on reducing costs. Pre-credit crunch, lenders were making good progress with electronic valuations, credit scoring and taking a sensible view. Until this attitude returns all parties will pay more, including consumers.
WHAT ARE SECURED LOANS PRIMARILY USED FOR?
Direct consumers use loans for debt consolidation, home improvements and increasingly for cash flow and to help family members. Through the intermediary channel the purpose of loans is less important and while many brokers consider a secured loan as a last resort we are increasingly seeing them weigh the value of loans against remortgages.
Typically, a loan is taken out when a borrower wants to retain an existing low rate on their mortgage or has high early repayment charges and their first mortgagee won’t lend as required. Similarly, if a borrower has adverse factors in their application it can be more cost-effective to take out a secured loan than to remortgage. A loan is often the only option, particularly when dealing with the recently self-employed or those with adverse credit.
SHOULD BROKERS BE CONSIDERING ADVISING ON SECURED LOANS AS A SOURCE OF ADDITIONAL INCOME?
Yes, but they must ensure they meet Treating Customers Fairly obligations.
WHAT WILL BE THE EFFECT OF SECURED LOANS BEING REGULATED BY THE FSA?
It seems likely that the Financial Services Authority will regulate secured loans but how it will do this is unclear. Harmonising Office of Fair Trading and FSA guidance may be a good thing but the FSA needs to better understand the sector to avoid over-regulation and imposing unnecessary cost.
INTERVIEW BY CHRISTINE TONER