Second charge market could double in 2018 as unsecured lending slumps

Second charge market could double in 2018 as unsecured lending slumps
With rates much lower than they were pre-Crisis and far more more transparency among providers, next year could see the number of secured loans double compared to 2017.

The number of secured loans taken out could double in 2018 as households find it far tougher to access unsecured credit, according to specialist packager, Thistle Finance.

The latest Bank of England Credit Conditions survey shows that the availability of unsecured loans decreased by 13% in Q3 and, more importantly, is expected to decrease by nearly 30% in Q4, the biggest contraction since 2008.

The Bank warned last month that lenders could face losses of £30bn on unsecured lending such as credit cards, personal loans and car finance if interest rates and unemployment rose.


It also announced that UK banks will have to raise an extra £11.4bn in capital requirements over the next 18 months due to "pockets of risk that warrant vigilance" including a rapid increase in consumer credit.

Due to the increase in consumer credit, the Bank announced that it would be bringing forward the assessment of stressed losses on consumer credit lending in its 2017 annual stress test from November to September. This, it says, will help inform its assessment of any "additional resilience required against this lending".

But with many households seeking to consolidate debts taken on at a time of stubbornly high inflation, Thisly believes many will increasingly turn to secured loans, allowing them to bring down their debt over a longer time period and at a more affordable rate.

Mark Dyason, Managing Director at Thistle Finance, commented: "There has been a lot of talk in the broker community over the past year about the opportunity surrounding the seconds market and this latest data from Threadneedle Street suggests it is not misplaced.
 
"With rates much lower than they were pre-Crisis and far more more transparency among providers, next year could see the number of secured loans double compared to 2017, and brokers will play a key role in ensuring their clients go to the right lender and get the right advice.
 
"Crucially, as well as offering much lower rates, many secured loans today have no early repayment charges, making them a genuine alternative for people looking to take control of their finances."

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