Harry Landy, director of Enterprise Finance, tells of how the secured loan market is blossoming.
As Chancellor George Osborne succinctly put it in the Budget when he was summarising his ongoing strategy to aid the UK’s economic recovery, “the sun is starting to shine and we are fixing the roof”. This analogy doesn’t only work well in political parlance, it also applies in more literal terms to our national attitude to DIY and home improvement. Autumn and winter are deemed as too unforgiving to begin projects that may involve compromising the cosiness of our homes, but as soon as spring has sprung the power tools come out and builders are commissioned. Easter weekend often represents something of an unofficial start to this season, bringing with it some extra days off work to get cracking on tasks that have been postponed from the end of last summer.
But while a trip to B&Q or the assembly of a few units from IKEA may not stretch the bank balance too far, undertaking more significant alterations to the structure of one’s house obviously involve more of an outlay. The fortunate among us may have a nest egg squirreled away to fund such work, but for many there is a gap between their saving pots and the building estimates that arrive.
One way of accessing finance for such projects is taking out a secured loan against one’s property and the research we undertook as part of our initial Secured Loan Index shows that almost half of borrowers taking out second charge mortgages do so to fund home improvements. A variety of other factors such as debt consolidation and other living expenses come into the equation too, but it is Englishmen reinforcing their castles that dominate proceedings. The sunshine maxim is also applicable here in that consumers feel more comfortable applying for additional borrowing when the economic outlook is more positive. Our figures show that monthly secured lending has steadily increased over the past few years as Britain gradually emerges from recession, with homeowners feeling increasingly confident to green light expenditure which may have been on the back burner for some time.
The first instalment of our Secured Loan Index also highlighted the contrast between fortunes in the second charge market when compared to remortgaging activity. The latter may dwarf the former, but it is the trend that is more pertinent. The remortgaging market has posted year-on-year decreases in volumes since last summer now, while the secured loan sector continues to blossom. There are a variety of possible explanations for this downturn in remortgaging, including homeowners awaiting the election result before undertaking any review of their personal finances and the historic low base rates meaning people are already locked into competitive deals, but part of the decrease is attributable to individuals finding alternative ways to access finance. Secured loans are an increasingly popular way of doing this and the modern intermediary should be alive to the usefulness of the products in helping their clients realise their aspirations – be it home improvements or other projects.