It seems to be the perennial question in our industry at the moment: is the customer better served by a second charge loan or a mortgage product?
Clearly, we all know that individual needs vary dramatically and the best course of action for one customer is often the worse possible solution for another.
But what gives me a tremendous amount of pleasure today is that the question is being asked at all.
Because until only a few years ago, there was very little prospect of a secured loan being put into the basket of financial options being considered by a broker or individual customer, let alone compared to the mighty mortgage, whose dominance in the market seemed impregnable.
The secured market has come of age in recent years and this is largely due to the fact that second charge packagers who dedicate their services to mortgage brokers have brought professionalism and commitment to service levels that I believe is unsurpassed in the financial services industry.
Clearly, the industry is aware that the advantage of a secured loan is that you often get more money at a lower interest rate for longer repayment period that you would with an unsecured loan.
This is because you have some assets to backup your loan. The lending institution prefers this kind of loan because if you find yourself unable to make payments, they can see your assets as an alternative form of payment.
Because the risk to them is diminished they are able to provide you with more attractive loans at a better rate.
There are also sound common-sense reasons why mortgage brokers are turning to products such as those packaged by secured loan packagers across the UK
They are competitive and simple, cost nothing to set up, and of course, the commission-structure for the introducing broker is straightforward and financially attractive.
The background of the market in which we operate has also played its part, for example there is so much credit being offered and people are increasingly finding that credit references are being recorded as a matter of course.
This has benefited the secured loans market because many customers have been steered away from conventional lending by the banks, hence the opening up of a much more diversified lending system for all of us which covers a much wider market.
Improvements in financial risk management assessment have meant that lenders are prepared to consider secured adverse credit loans where such a thing was not conceivable in the past.
The self-employed, in particular, are no longer treated as the second-class citizen of the loans market as they used to be for many years.
The introduction of self-certification has helped this; two years of audited accounts are no longer automatically required from those people who work for themselves and defaulters, people with CCJs, IVAs and even discharged bankrupts are now regularly given a second chance.
Equally, banks are no longer the only source of finance. Banks like to have as much security as possible, so they can afford to pick and choose whom they lend to.
Banks also prefer a 'one size fits all’ approach, which many clients do not respond well to and this again has led to the proliferation of products we see in today’s marketplace
I’d like to stress again the high levels of service our sector provides. Our industry is now first-rate at providing a personal service; from the point of view of speed and set up costs, we’ll beat the service provided by a mortgage provider every time.
Often, a secured loan will involve more procedures and will usually take longer, so our staff has to be at the top of their game when servicing introducers and clients. We have learnt that consumers like to be treated as real people than just numbers or prospects.
The growing-up of the secured loan market has also witnessed a much greater diversity of secured loans become available in the UK market place, such as the introduction of non-status loans, debt consolidation loans, and both personal and business advances.
Special plans will usually also exist if the property your loan is secured on is in some way different. For example, brick and tile is the preferred form of construction, but if your home is concrete based, or timber, or even has a thatched roof, special plans are there if you seek them out.
Another of the great strides made in the secured loan market in recent years has been our determination to show the market to be mature and proper.
As consumer debt has mounted in the UK – and more people make efforts to pay it off – our industry has become much more anxious to prove that we are not making profits at the customer's expense.
Of course, we reserve our right to make a return, but I think the market has been keen to put responsible lending to the force and sought to overcome fears that our sector’s risk and reward ration is very much in kilter.
Going forward, the market for secured loan products and their derivatives will continue to open up. But with that increase in business, comes an increase in responsibility. One of the key criteria in the years ahead will be the onus on companies such as ourselves to ensure the means of the borrower is properly and thoroughly considered before making a loan.
In simple terms, this means that it is vital that lenders take details of income and outgoings before making a loan. As well as a caring approach, this is completely pragmatic method of carrying out business.
Equally, borrowers need to be provided with as much information as possible to ensure what sort of borrowing would suit them best, given the length of time for which they want to borrow and the cost. They should be encouraged to borrow only if they have worked out in advance how to pay off the money and manage the repayments within their budget.
In the business in which Yes is a leading player, essentially lending to a market that previously struggled for recognition and support from more traditional sources, we continue to be concerned at the number of providers that sign-up to the promise, but continually fail to deliver.
It worries me that in the fringe door to door lending market, some lenders still do not have any systems for making sure that their agents record the borrowers’ circumstances at the time of making a loan. In others, commission arrangements and incentives for agents selling loans sometimes lead to borrowers’ circumstances being overlooked and ignored.
We need to ensure that everyone appreciates that credit does need to be available to low-income households, or the self-employed or those with previous experience of poor debt management, if it is going to be used in a productive way.
Finally, the industry must also ensure that we do not ‘protect out’ the most high-risk customers from the lending market. Too much legislation will serve only to force our industry to turn away many people who are in need of credit, despite them having the wherewithal over the long-term to make the repayments.
Responsible lending is taking place the length and breadth of the UK by responsible lenders, working closely with the intermediary market. Our challenge as an industry in the years ahead will be to ensure it is practised and not just preached. This is essential as we continue to make efforts to persuade introducers and clients that there is a sensible and cost-effective alternative to the mortgage.
I believe that while the financial services industry has continued to evolve, the secured loan has come of age.
The secured loan is no longer the down-trodden kid brother, standing at the side of the pitch desperate to get a game of football with the older lads. It’s now a first-team selection!
