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Secured personal loans still a safe bet

17th October 2007
By BBR Staff Writer

The UK secured personal loans market continues to portray an encouraging future in the long term, despite the global credit crunch and recent events in the US sub-prime mortgage market, which have caused some lenders to pull out of the market indefinitely. The UK secured loans market is expected to expand from GBP7.5 billion in 2006 in terms of gross advances to reach GBP10.2 billion in 2011.

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2006 and H1 2007 saw strong growth for the market

After a difficult year in 2005, during which greater economic and housing market uncertainty took its toll, the UK secured personal loans market gave a resurgent performance in 2006. Gross advances hit a new high of GBP7.5 billion in 2006, representing growth of 16.3% over the previous year. Indeed, resurgent house price increases acted as a stimulus to the market.

Moreover, other factors such as a pickup in GDP growth, rising unsecured debt, which impacted positively on demand for debt consolidation loans, and an improvement in consumer spending all helped to push the market forwards.

Growth in 2007 has also been strong. According to lending figures released by the Finance and Leasing Association (FLA) for its own membership base, new lending in H1 2007 totaled GBP2.8 billion, up 5.4% on 2006 levels.

However, the global credit crunch has caused several lenders to leave the market

Notwithstanding the secured personal loans market's development, the market has been significantly affected by the US sub-prime mortgage crisis and the recent global credit crunch. Indeed, rising defaults on sub-prime mortgages in the US have affected a large number of lenders and investment banks in the UK, and the global credit crunch has made it more difficult for lenders to access finance on the money markets.

In response, a number of lenders have exited the UK secured personal loans market or withdrawn temporarily amid greater uncertainty. For example, Kensington Personal Loans entered the market in 2006, but has since withdrawn temporarily. Meanwhile GMAC-RFC has abandoned its former plans to enter the secured personal loans market in April 2008 and Lehman Brothers closed down London Mortgage Company and Southern Pacific Personal Loans as it plans to carry out a global restructuring. Other lenders are reviewing their current strategies and assessing the risk they are taking on. It is likely that lenders will become more conservative with regards to their criteria and, as a result, increase the cost of borrowing.

Still, the secured personal loans market is set for encouraging future in the long term

While a few lenders' withdrawals will negatively affect the market, there will still be demand from consumers and there are other lenders and intermediaries waiting to enter the market. Some lenders will withdraw from the market for a short while before returning, thus affecting the market in the short term rather than the long term.

Despite recent events, the secured personal loans market is still expected to have an encouraging future and, according to Datamonitor forecasts, gross advances will reach GBP10.2 billion in 2011, growing at a compound average annual rate of 5%.
'End Intelliext

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