Some changes for secured loans over the last decade
If we go back 10 years, like most of the different finance facilities available this was a boom time for secured loans and the lenders who provided them. A secured loan is a loan facility where the lender takes a legal charge, as a form of security, out against a property that the applicant or applicants own. By doing this the risk of bad debt is reduced because the lender has a claim on a valuable asset owned by the applicant. In addition missed or late payments tend to be significantly less with secured loans when compared to unsecured loans because borrowers tend to make paying their mortgage and any other secured borrowing a priority, so when times are tough mortgages and secured loans still tend to get paid at the expense of unsecured facilities.
For lenders who provide secured loans this added security enables them to offer larger loans over longer terms with a lower interest rates when compared to unsecured loans. Many finance facilities are approved or declined based on credit score, whereas many secured loans are still available for applicants with a low credit score since the lender is provided with additional security reducing their risk of loss.
A decade ago secured loans could be obtained from an extensive selection of providers who would provide loans up to £100,000 with repayments periods of up to 25 years. The loans would be secured against the applicant’s home and the total amount that could be borrowed would be based on the applicant’s income and on the available equity in the home when taking into consideration the value of the property and the mortgage amount outstanding. Most lenders had facilities to lend up to 95 or even 100 percent of the available equity, and there was one lender at that time who would lend up to 125% of the loan to value. Their idea was that some of the money that they lent was secure in that there was available equity in the property, and as time went by as house prices increased their security also increased! They also worked on the principle that people would pay them as a priority over other debts, whilst also being very selective about whom they lent to, only approving loans to applicants who had excellent credit scores, good jobs in stable employment and received a good income.
The credit crunch was responsible for seeing many secured loan providers leaving the market and a complete change in the type of loans that were available. The last 18 months has seen more lenders returning to this market and there are once again facilities to provide secured loans up to and above £100,000. However credit history is once again quite an important factor for lenders when deciding who they will lend to, so is income and loan to values are at just 85 to 90 per cent. Due to the increased popularity of buy to let properties there are now some secured loan facilities available that will use the equity available in an investment property as security.