Homeowners lately seem to prefer secured lending over remortgaging as an option to get extra cash.
Remortgaging has been gradually slowing down since the beginning of 2014 and by December last year activity in this sector was down by 11 per cent, according to figures from the Council of Mortgage Lenders (CML).
Secured lending, on the other hand, has seen an increase by almost a third within a year, the new Secured Loan Index from Enterprise Finance shows. The total amount lent grew to £779 million in January 2015 from £609 million in January 2014, which represents an increase of nearly 28 per cent.
Harry Landy, director of Enterprise Finance, comments:
“The actual size of the remortgaging market continues to dwarf that of second charge lending, but the annual change figures make for interesting reading. While homeowners seemed to shy away from remortgaging in the second half of 2014, the secured loan market continued to grow in stature. While this correlation may be entirely coincidental, there are definitely individuals who are viewing secured lending as a viable alternative to remortgaging and something that won’t endanger their mortgage rate which – given current interest rates – is likely to be extremely competitive.
“Secured loans – indeed loans in general – may once have been the sole preserve of the hard up or those in a tight spot financially, but they are now increasingly used by comfortably-off homeowners who want a cash injection to further improve their quality of life. The value of the market is unlikely to overtake that of the remortgaging market any time soon, but as more homeowners realise it is a feasible option, it will continue to make inroads.”
What people mostly used the new loans taken out in January for were home improvements, Enterprise Finance’s research revealed. Almost half (47 per cent) of borrowers spent the money on enhancing their homes. Second most popular reason named was debt consolidation. Other common motivators to borrow from the bank were the access to capital and new purchases.
The average size of the secured loans in January stood at £54,050, a 15 per cent rise on December and a 12 per cent increase on January 2014.
The average typical first charge borrower’s second charge mortgage currently stands at £234,313. The average loan-to-value (LTV) for the loans stands at 61 per cent.
“The average LTV ratios, loan sizes and first charges the secured loans are sitting behind shows that lender and brokers – not to mention borrowers themselves – are adopting a sensible approach to consumer credit and not allowing individuals to overstretch themselves,” Landy says.
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