A new report by independent market analyst Datamonitor expects the UK secured personal loans market to expand, despite the recent events in the US sub-prime mortgage market and the global credit crunch.
The report expects the market to grow from 7.5 billion in 2006 in terms of gross advances to reach 10.2 billion in 2011, growing at a compounded average annual rate of 5%.
“The US sub-prime mortgage crisis and global credit crunch will affect the market in the short term. However the UK secured personal loans market continues to portray an encouraging future in the long term,” says Maya Imberg, analyst with Datamonitor’s Financial Services practice.
After a difficult year in 2005, during which greater economic and housing market uncertainty took its toll, the UK secured personal loans market gave a resurgent performance in 2006. Gross advances hit a new high of 7.5 billion in 2006, representing growth of 16.3% over the previous year. Indeed, resurgent house price increases acted as a stimulus to the market. Moreover, other factors such as a pickup in GDP growth, rising unsecured debt which impacted positively on demand for debt consolidation loans, and an improvement in consumer spending all helped to push the market forwards.
Growth in 2007 has also been strong. According to lending figures released by the FLA for its own membership base, new lending in H1 2007 totalled 2.8 billion, up 5.4% on 2006 levels.
Notwithstanding the secured personal loans market’s development, the market has been significantly affected by the US sub-prime mortgage crisis and the recent global credit crunch. Indeed, rising defaults on sub-prime mortgages in the US have affected a large number of lenders and investment banks in the UK, and the global credit crunch has made it more difficult for lenders to access finance on the money markets.
In response, a number of lenders have exited the UK secured personal loans market or withdrawn temporarily amid greater uncertainty. For example, Kensington Personal Loans entered the market in 2006, but has since withdrawn temporarily. Meanwhile GMAC-RFC has abandoned its former plans to enter the secured personal loans market in April 2008 and Lehman Brothers closed down London Mortgage Company and Southern Pacific Personal Loans as it intends a global restructure. Other lenders are reviewing their current strategies and assessing the risk they are taking on. According to Datamonitor, it is likely that lenders will become more conservative with regards to their criteria and, as a result, increase the cost of borrowing.
While a few lenders’ withdrawals will negatively affect the market, Datamonitor believes there will still be demand from consumers and that there are other lenders and intermediaries waiting to enter the market. Datamonitor believes the secured personal loans market portrays an encouraging future and forecasts gross advances to reach 10.2 billion in 2011, growing at a compounded average annual rate of 5%.