The UK secured loan market has grown rapidly over the last 10 years, according to figures from Datamonitor the market is now worth around £6 billion. Any market this size is bound to attract its share of suspect operators and the UK secured loan market is no different. There is still very limited regulation covering second charge loans with most of the legal stuff designed to protect the lender’s interests and not the borrower’s.
Anyone who owns a television will definitely be aware of the promises that a secured loan will solve all their worldly problems. Few people will be aware that the vast majority of advertisers are brokers and not lenders, further they may not be aware that in order to become a finance broker you only need a Consumer Credit License from the Office of Fair Trading. Although the system is set to change in 2008, at the moment a Consumer Credit Licence costs less than £300 for 5 years which makes getting a license easy.
Most of the advertisements seen on television tend to focus debt consolidation, which is a shame as this undervalues the concept of a secured loan. It is also something of a myth that a secured loan is always cheaper than credit card debt. If a borrower has to “self-cert” their income, which is not unlikely if there are significant debts to be consolidated then the interest charged can easily exceed credit card rates.
Secured loans are NOT regulated by the Financial Services Authority (FSA). The FSA took over control of the mortgage industry in 2005 but secured loans, buy-to-let mortgages and commercial loans were excluded from their authority. If a secured loan exceeds £25,000 then it is not covered by the Consumer Credit Act and you are likely to see very high early repayment charges. There are a couple of self-regulating organisation such as the Association of Finance Brokers (AFB) but as membership of such bodies is voluntary it is difficult to imagine how effective they can be.
It is not all bad news about secured loans though, there are plenty of examples of how a secured loan can be a cost effective and efficient way of raising capital quickly. Given that the legal implications of taking out a secured loan are similar to your mortgage it makes sense to talk to your mortgage broker first. As all mortgage brokers are regulated and vetted by the FSA it is far less likely that you are going to encounter any dodgy practises or non-disclosed fees.
All financial advertisements offering secured loans are required (by law) the carry the FSA risk warning stating that your home is at risk if you fail to keep up payments on a secured loan. Take note of that warning and don’t just assign your home to someone you have no reason to trust other than the fact they have hired a celebrity to endorse their products on television!
[tags]secured loans, debt[/tags]