Slowdown in secured loans looms

The public's appetite for secured loans is set to wane over the next five years as the housing market continues to slow down, according to a new report.

Analysts at Datamonitor said that over the past five years the market in loans secured on the borrower's property had boomed, with the total sum advanced growing by 50% a year.

Between 2005 and 2009 the firm expects growth to average just 5.3% a year, as the cooling property market means people have less equity in their property to borrow against.

When house prices were rising sharply, many homeowners found they had a lot of value in their property, which they could release with a further advance on their mortgage, or a separate loan.

It said that it expected house prices to continue to move upwards, but the slower pace of growth would have an effect on the market.

Datamonitor found that last year a total of £32.6bn of secured loans were taken out and predicts the figure will reach £35.4bn in 2009.

Currently, the market is dominated by a number of high profile brokers such as Ocean Finance and Freedom Finance, but mainstream lenders are showing an interest and Halifax and Barclays have both entered the market.

However, Datamonitor said secured loans were still associated with "debt-laden sub-prime consumers" and that other customers were unaware that they were an option.

"If the secured loan market can overhaul its current image to mainstream consumers; the market, and in particular, mainstream lenders, are likely to see substantial growth," said Maya Imberg, financial services analyst at Datamonitor.

Secured personal loans are often used by homeowners who are unable to borrow money elsewhere, as their property provides the lender with an asset should they default on the loan.

Interest rates tend to be higher than on unsecured personal loans - the current best-buy secured loan on Moneyfacts.co.uk has an interest rate of 6.8% compared with a rate of 5.5% on the cheapest unsecured loan. However, much larger sums of money are available, with some lenders offering secured loans of up to £100,000.