How the credit crunch has changed the face of secured loans
Wednesday 16th July 2008Secured loans, along with the rest of the lending market, have been severely battered and continue to suffer from lender withdrawals and product criteria changes. However, that does not tell the full story and if we dare to look beyond the current situation to a more stable future, then the outcome for secured loans diverges from the norm.
By far the most fundamental change to have taken place since the credit crunch, which has been a positive outcome, is the change that has taken place in the attitude of intermediaries to secured loans. The blood letting in the mortgage market has made many intermediaries look around for alternative funding sources and the secured loans sector has never been more inundated with new advisers who would not normally have had anything to do with the second charge market.
As more customers have come forward to refinance and consolidate debt, the remortgage route has been closed to more and more cases as lenders have withdrawn or raised the bar on what they consider to be worthwhile risk. At Loanoptions.co.uk, we have championed secured loans to the mortgage intermediary market over the past five years and while many more mortgage brokers had recognised that secured loans had a significant role to play, there was still a hard core of advsers, who refused to have anything to do with them.
The current situation has done more to change attitudes than any single event before. Even the growing regulatory evidence that secured loans were better advice than remortgaging in certain circumstances was, until this year, being ignored by many. None of us would have wanted this sea change in attitude to happen in quite the way it has. The credit crunch has devastated a large part of the specialist lending market and it is agonising to see that the demand for mortgages and loans continues to grow but the ability to service it has diminished so far.
In common with the mortgage market, the secured loans sector is having to find ways to adapt to stay ahead of the changes that are taking place. With profit margins falling and lenders withdrawing, secured loans packagers who provide whole of market facilities to intermediaries are struggling to cope. Business models which have been sound in the past are no longer viable and already many well known names have become casualties. Those that will survive and prosper will be those companies which are able to maintain their service levels and product offering while cutting overheads. The winners will be those who have put technology at the heart of their business process and are able to automate as much of their business as possible without losing key personnel.
Since this crisis started I have maintained that there will be light at the end of the tunnel. Clearly, we are not out of the woods yet. At the time of writing there is very little comfort to be offered that liquidity and therefore funding will return soon. The market post credit crunch will require intermediaries and packagers to recognise that the days of easy pickings are not going to come again soon. The quality of advice to clients is going to be paramount as is the ability of every business to be as efficient as possible. However, when the market does return, secured loans will be part and parcel of every intermediary’s business and that is something to be pleased about.
Andy Moody, Loanoptions
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