Secured Loans & the BoE Credit Conditions Survey

For anyone with enough equity in their home, a secured loan can be an effective way of ‘freeing it up’: basically, turning some of it into cash.

During a credit crunch, however, a secured loan isn’t always an option. Credit of all kinds – including secured loans – can be harder to find and more expensive than it was a year ago.

Secured loan news

When the Bank of England (BoE) published its latest Credit Conditions Survey, it revealed that lenders had reduced the availability of secured loans in the three-month period leading up to mid-June. They had four reasons for this:

1. Because they were finding it harder to borrow money themselves,
2. Because of all the economic uncertainty we’re seeing right now,
3. Because their ‘appetite for risk’ had decreased, and
4. Because of worries about house prices.

What’s more, they think that the availability of secured loans will shrink further over the next three months – but only by about half as much as it shrank in the last three.

So homeowners with enough equity to draw on can still get a secured loan, as long as they talk to a lender specialising in helping people in their situation – and as long as the lender can see they’ll be able to make the repayments without getting into financial trouble.

Secured loans & House prices

Uncertainty in the housing market could be a real obstacle for anyone thinking about taking out a secured loan. The vast majority of secured loans are secured against equity in the borrower’s home – the part of the home’s value that the borrower doesn’t owe money on (whether on their mortgage or through a secured loan they’ve already taken out).

Equity – a quick example:

1. Mr. Smith lives in his £150,000 house.
2. He still owes £70,000 on his mortgage.
3. He’s secured a £20,000 loan on his house, too.

So he owns £60,000 of equity (150,000 - 70,000 - 20,000).

Today, since no-one knows for sure where house prices are heading, it’s hard to predict how much equity someone will have in their property next month or next year.
If the value of Mr. Smith’s house dropped by £20,000, for example, he’d only own £40,000 of equity.

This uncertainty is making lenders think twice about letting people secure loans on their property. So – what’s next for house prices?

House price opinions

We’ve seen house prices drop quite dramatically this year, but the experts don’t think this will continue:

 “I think we are unlikely to see the fall continuing at that kind of pace.”
Martin Ellis, Halifax chief economist

“I don’t think anyone is expecting the monthly rate of decline in the Halifax figures to just carry on.”
Bernard Clarke, Council of Mortgage Lenders.

This is obviously good news for people who are thinking of taking out a secured loan – and for homeowners in general!

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