'Content From 2005 to 2009, Datamonitor predicts gross advances to grow at an average of just 5.3% a year, to reach GBP35.4 billion in 2009, compared to the growth of 50% a year over the last five years. Last year gross advances for secured personal loans and further advances amounted to GBP32.6 billion, up from GBP28.1 billion in 2003.
The slowdown of the UK housing market already being witnessed in 2005 will impede further rapid growth of the secured lending market in the UK, causing it to slow considerably. Previously, rising house prices boosted consumer confidence, resulting in consumers being more likely to borrow on a secured basis. Datamonitor does not expect the current conditions of the UK housing market to reverse within the next few years. Although house prices will continue to register growth each year, the rate will be well below historical levels.
This will cause secured lending to slow as consumers will not be able to earn as much equity in their homes as they used to. In addition, lower consumer confidence will also play a role.
Mainstream lenders getting involved
The secured loan market is dominated by a number of high-profile credit brokers such as Ocean Finance, Freedom Finance and Norton Finance. Most lenders operating in the secured loan market are specialist sub-prime lenders, such as GE Home Lending. However, mainstream lenders are also showing interest in the market following the success of Halifax and Barclays.
Prior to their entry, many mainstream customers had to turn to specialist lenders in order to borrow more than they would have been able to with a mainstream provider. However, mainstream lenders are beginning to offer larger amounts, such as Barclays (which offers up to GBP100,000 through the use of its subsidiary Firstplus's secured loan product).
Crucially, once the Consumer Credit Act (CCA) drives the removal of the GBP25,000 ceiling on regulated loans occurs (most likely to come into effect in the Autumn of 2006 when primary legislation is passed), it is expected that existing and any future mainstream entrants will be willing to offer larger loans, thus increasing their competitive threat. In addition, as mainstream lenders tend to offer the lowest prices on the market, specialist lenders are going to have difficulty competing against this escalating encroachment.
This will eventually lead to a decrease in the market share of small specialist lenders, who will find it difficult to compete on equal terms. In particular, this will be true in regards to lenders who also target mainstream customers. Not only will many specialist lenders have to deal with a decline in their customer base as a direct impact of the slowing housing market, they will also have to compete with encroaching mainstream lenders.
Where do lenders go from here?
For mainstream lenders to be highly successful, they will need to continue to revamp the image of secured loans. Lenders need to further push the perception that secured loans can be a financial solution for all categories of homeowners, rather than a product usually associated with debt-laden sub-prime consumers. Some mainstream lenders interviewed by Datamonitor found that their mainstream customers remain unaware that secured loans could be an option, or that they gauge the product incorrectly.
Although the market has experienced a slowdown in growth, Datamonitor predicts all is not lost and the market still has a bright future ahead. If the secured loan market can overhaul its current image to mainstream consumers; the market, and in particular, mainstream lenders, are likely to see substantial growth.
UK secured lending growth set to cool
20 Sep 2005
- UK mortgage market: signs of stabilization
1 Sep 2005
- Bradford & Bingley Q2 performance "ahead of schedule"
9 Aug 2005
- BBA reports slowed mortgage lending in July
19 Aug 2005
- UK consumers shy away from debt
4 Jan 2006
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