Loans Expert

Falling house prices and spiralling interest rates have put pressure on homeowners with secured loans.

With a traditional unsecured personal loan, the only security the lender has is your promise to repay. But secured loans are effectively a second mortgage on your home, so if you miss payments your house could be repossessed.

And unlike unsecured personal loans which are usually on a fixed rate, secured loans tend to be variable rate and those rates are rising. In recent weeks, average rates have increased by about two percentage points – adding around ?3,690 to the price of a typical ?30,000 secured loan repaid over ten years.

According to comparison website moneysupermarket.com, Nemo Personal Finance, part of Principality Building Society, has raised rates from 8.9% to 10.9% for someone borrowing ?30,000 repaid over ten years. Monthly repayments have risen from ?373 to ?403, and the total cost of borrowing would now be ?48,432.

Traditionally, these type of loans were taken out by those with bad credit records.

But with mortgage rates rising steeply in the past 12 months, and with consumers who want to borrow more against the equity in their home having to pay large redemption charges on their existing mortgage, many borrowers with good credit history have been pushed towards secured loans.

With house prices falling there is another danger lurking. As a second charge, the secured loan provider gets only a second picking of any debts after your mortgage lender has taken its share.

There are concerns that homeowners could be put under pressure by these lenders who, it is felt, could move earlier to repossess to protect their money.

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Tags: home loans, Personal Loans