Don’t write off the secured loan sector, warns Phil Whitehouse, head of The Mortgage Alliance (TMA)
Statistics can be damning, especially in financial services, and sometimes headlines that highlight statistics do not fully reflect market conditions. Take for example the latest figures released by the Finance & Leasing Association on consumer finance lending in the secured loans market. In the report members suggest that new secured lending business fell 84% in Q2 of 2009. It reports that in June 2009 there was £42 million of new secured lending, an 85% drop compared to £270 million in June 2008. In the three months to June 2009 there was £128 million of new secured lending, which also represented an 84% drop on the same period last year. In the 12 months to June 2009 there was £1, 071 million worth of new secured lending, a 77% drop on 2008 figures. New credit provided by FLA members fell in Q2 of 2009 by 17%, compared with the same period a year earlier.
At TMA we provide a strong secured loans panel to support our members in this area of the market and upon seeing this news story I spoke to Steve Walker, managing director of Promise Solutions for his thoughts. Through this conversation and similar accumulated anecdotal evidence it has been suggested that whilst the secured lending market has obviously contracted greatly, figures trading through the intermediary market are not quite as damning as the figures being bandied around by the Finance & Leasing Association.
It is fair to say that the secured loans sector has seen a number of providers exit the market and product number greatly reduced over the past year or so but, unfortunately, this is also applicable across the majority of the mortgage market. Lending criteria has also certainly tightened, LTV levels have been lowered significantly and when combined with high headline rates it is little wonder that the sector has suffered. However, before we dwell too much on the doom and gloom, it is important to balance the negatives with the positives and there are some signs that there is increased positivity coming from both within the sector and beyond.
The recent announcement by Promise that it has reduced annual interest rates by more than 3% on a number of its near prime and sub-prime loans is – for the want of a better word – a prime example of lenders showing more appetite to lend amidst current market conditions. It is not common knowledge which particular lenders are offering the reductions as Promise has said that it wants to test the market, in terms of market and control of distribution, but it is a good sign that lenders are becoming increasingly competitive. Commission rates for introducers also remain high with the average commission fee in the region of £1,100 and £1,200 and fees of between £2,000 and £3,000 still far from uncommon for a straightforward referral case. If these figures aren’t enough to energize an intermediary into at least researching the benefits of the sector then they are obviously sitting on a rare and enviable client base.
Despite recent market conditions it is evident that the secured loans sector remains an important element of the industry and should still be incorporated as a key component in any intermediary’s range of services. Intermediaries need to be increasingly creative in their offerings and the second charge market can add an increasingly valuable and flexible addition to these offerings to help fulfil a purchase or a sale. However, as with any potential new area, brokers wishing to diversify and make best use of such products must make sure that they research their options very thoroughly in order to find the best solution for their client.