After coming under the Financial Conduct Authority’s responsibility in April, the secured loans sector is being touted as another option advisers should consider with clients worried about the impact of potential interest rate rises on their mortgages.
On 1 April, the Office of Fair Trading handed over responsibility for secured loans to the FCA, boosting the sector’s reputation and encouraging several reputable mortgage lenders to move in.
Darrell Walker, head of intermediary at Freedom Finance offshoot The Lending Wizard, said: “Now we’re all under the same umbrella, this proves our proposition is fit for purpose, and any mortgage adviser now has got to consider a second charge as a viable option when they’re giving holistic mortgage advice.
“Advisers may have had their blinkers on to some degree with standard first charge mortgage products, but now its their responsibility to at least have one eye on whether a second charge would be right for their client.”
Mr Walker suggested that those on historically low tracker mortgage rates may want to sit tight rather than moving onto fixed rates, using secured loans for any other borrowing needs.
He said: “The general consensus is that at some point in the near future there is going to be an increase in rates, I wouldn’t say that there will be a panic, but stronger advisers are beginning to pre-empt that and get people in for reviews.
“Off the back of that you’ve got the tool of secured loans, so people can ringfence their existing mortgage and then use secured to pay for other things.”
Rachel Springall, finance expert at the Moneyfacts Group, said the secured market is thriving, with more and more lenders providing greater competition and an alternative vehicle for advisers to consider for their clients.
“Interest rates are low and with the anticipated base rate imminent, now would be a good time as any to weigh up all options of finance, especially as some secured loan lenders accept clients with mortgage arrears or poor credit.”
Ms Springall did caution that due to the risky nature of these loans, advisers need to keep a good audit trail when recommending these types of products.
She said: “As more and more secured lenders become an online driven force and some clients find it difficult to obtain normal loans or remortgages due to their credit ratings, it is a market that is only set to keep growing.”
Matt Tristram, co-founder and director of Loans Warehouse, told FTAdviser that the secured loans sector has regulated itself well and generally followed trends in the mortgage market, with most lenders being backed by high street banks.
Competition reduced during the credit crunch, but those lenders that took adverse credit survived and now the market is booming again, he said.
Secured loans completed this year topped £250m this year, according to the May edition of Loans Warehouse’s Secured Loan Index, the second highest lending figures since October 2009.
