A secured loan is a second charge on a property. Currently you can have total borrowings on your property of about 85% (subject to circumstance, of course) so if your mortgage is less than this amount you can borrow extra up to this amount using this available equity, usually no more than $100,000 though. Rates on the loans start from about 7.9% and depending on the Borrower's circumstances can reach up to 30.9%. This may seem high against a backdrop of 0.5% base rates but when you consider that an unsecured loan can be as high as 149%, suddenly it seems like relatively good value!
So what has driven growth in this market? Quite simply, it is demand at the right levels. The demand has been largely driven by Borrowers who are on excellent Tracker mortgage rates - a hangover from the credit bubble - and do not wish to remortgage and lose this rate in order to increase leverage. For example, a borrower on 50bp over base Rates (yes, there are many such people!) is now only repaying at 1% p.a. but if they remortgaged to raise extra finance, this rate would easily triple or quadruple. In light of this a loan at under 9% makes a lot more sense when viewed in the context of a weighted average of the Borrowers borrowings.
When we say it us demand "at the right level" this is a reference to the rates that can be attracted and, possibly more importantly, the fees that can be earned by Brokers for providing these loans, thereby incentivising them to push them with their customers. Normal fees are about 10% of the total loan amount and though this does increase the overall APR and is far more than the nominal fee charged for to arrange an unsecured loan, in light of the aforementioned reasons it is often still worth it. Of course with such generous fees there is a strong incentive for Brokers and also Introducers who can earn up to 60% of this fee for simply making a referral! It's not hard to see then why the market has grown in prominence and volume!
Will this last? As long as remortgage rates and LTVs remain prohibitive, along with other lending criteria, then the answer is probably Yes. In addition some price competition between Lenders and also between Brokers as emerged recently making this product even more attractive for Borrowers. Whatever happens, one thing is for sure: the Secured Loans market has emerged from the shadow of Mortgages and is now firmly on Borrowers' financial radar.