The secured loan market is declining rapidly, with eight lenders having withdrawn from the market in the past twelve months, according to Moneyfacts.co.uk.
Earlier this week, Barclays pulled the plug on its First Plus second charge mortgage business, one of the largest in the UK.
Since July 2007, a number of lenders have withdrawn from the market, including Alliance & Leicester, Capital One Bank and Money Partners.
Michelle Slade, analysts at Monefacts, explains: “Unfortunately, many lenders are no longer finding secured loans a viable business option.
“They face the same funding issues as mortgage lenders and with house prices continuing to fall, lenders can no longer be sure that, if a consumer defaults on their loan, they will have enough equity in their home to repay the debt.”
With prices falling, the second charge lender may not be able to recover its loan in the event of the borrower being repossessed. With many analysts now predicting prices will fall by 30%, there may be little equity left for secured loan firms after repaying the mortgage lender and fees in a repossession case.
Those lenders still in the secured loan market are also restricting their product range and raising rates to compensate for the risks involved, and Moneyfacts.co.uk says more lenders may suspend lending in the near future.
“If the credit crunch can cause one of the biggest lenders in secured loans to throw in the towel, it will be interesting to see if the other providers can weather the storm”, says Slade.
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