The number of homeowners taking out secured loans is set to slow down over the next five years according to analysts at Datamonitor. Over the past five years, the market for secured loans has increased by over 50%, however predictions indicate that loans secured against property will only increase at a rate of 5.3% a year up to 2009. Last year, 6bn was borrowed by homeowners secured against the value of their property but according to Datamonitor this will rise to 4bn a year by 2009. Datamonitor stated that the slowing demand for loans reflected a public perception of an ongoing "soft landing" for the UK housing market. Maya Imberg of Datamonitor said 皟The rapid growth rates the secured lending market has enjoyed over the last five years are set to cool".
The slowing in house price inflation that has been experienced over the past few months is seen by analysts to have discouraged homeowners from taking out loans secured against the increased value of their homes. Secured loans are normally seen as a sensible way to borrow for certain expensive items, such as home improvements, due to the higher borrowing limits and cheaper interest rates that are generally charged compared with an unsecured loan.
In the past it has been common to see that while the value of homes has risen, many families have increased their mortgage borrowing to release money tied up in the property, to pay off other debts or make expensive purchases. This mortgage equity withdrawal generated approximately billion for homeowners between 2001 and 2004. The recent perceptions that a return to the risks of negative equity occurring as a result of buyers needing to obtain increasingly large initial mortgages to purchase property combined with the slowing down in house prices, has caused many to be more cautious in their borrowing.
In July 2005, the total UK personal debt stood at 14 billion and has been spiraling out of control at a rate of every four minutes. The number of bankruptcy applications and home repossessions is also on the increase.
According to mortgage-arrears counselors, White Horse Mortgage Services, the main reasons for people falling behind on their loan repayment include:
* Absorbing: a reduced income such as loss of overtime 26%
* Financial mismanagement: 25%
* Redundancy and unemployment: 14%
* Accident, sickness or injury: 12%
* Relationship breakdown: 7%
* Over-indebtedness: 5%
* Others: 11%
UK website moneynet has evolved its range of services to integrate the societal changes in debt management, by bringing out a price comparison service for debt consolidation loans, as part of its loan awareness campaign. Whilst moneynet offers a comprehensive loans guide, moneyfacts has also taken account of consumer behaviour and concern, with a dedicated loans glossary. In the US, lowermybills provides a loan price comparison service.
Additional resources:
http://www.moneynet.co.uk/personal-loan-guide/index.shtml
http://www.moneynet.co.uk/loans/index.shtml
http://www.moneyfacts.co.uk/guides/guide_loans.asp About the Author
Rachel drives a Fiat Punto and also writes for the personal finance blog Cashzilla:
http://www.cashzilla.co.uk