British attitudes to personal finance can be a funny thing. On the one hand we are notoriously private when it comes to discussing wage packets or how large our mortgage is, while on the other we rejoice in telling anyone who will listen how much property prices have appreciated in our area. In short, we conduct our conversations about money as an individual public relations exercise – happy to accentuate the good news, while remaining coy about sharing information that might not be construed as positive.
Similarly, we are happy to boast about our latest home improvement project, but not necessarily how much it is costing or how we are funding it. This may be one reason why the huge growth in secured lending – or second-charge mortgages – has remained relatively undocumented until now. Remortgaging to release equity built up in one’s property has long been a common method for funding projects such as home improvement, but secured loans haven’t garnered the same column inches as remortgage deals.
Yet our research found that not only are home improvements the most popular reason for taking out a secured loan (cited by 47% of individuals), but also that the secured loan market is blossoming while remortgaging activity continues to decrease on an annual basis. Take December as a case in point – while the secured loan market was 30% larger than at the end of 2013, the remortgaging market had witnessed an 11% decrease. The latter obviously remains the larger market, but it is the trend that is interesting and one that suggests that those thinking of freeing up some equity are looking to alternatives to jeopardising their mortgage rate.
Another interesting phenomenon is the fact that secured loan activity is continuing to soar at a time when economic prospects are improving. You might assume that demand for loans is likely to be higher when individuals are feeling more squeezed, but our research – and Bank of England data on consumer attitudes to credit – flies in the face of this. Far from loans being some sort of last resort, they are actually allowing homeowners to fund projects they may have postponed during bleaker economic times and it would appear that individuals feel more comfortable about additional borrowing when the general outlook is healthier.
Looking at additional information uncovered by our Secured Loan Index to build a profile of what a typical secured loan borrower looks like, it becomes clear that those accessing such finance aren’t people in dire financial straits, but are actually more commonly those in a comfortable position simply wanting a cash boost to further improve their quality of life.
Simply put, a growing number of us are turning to secured loans for a variety of reasons, but we are not yet shouting it from the rooftops. As the market continues to grow, products become more attractive and we head closer to regulation of the second charge mortgages market mirroring that of the mainstream mortgage market, this consumer coyness could be set to evaporate.