Monthly secured lending fell back by 1% to £73m in May, according to the latest Enterprise Finance Secured Loan Index.
The slight cooling in activity means there was 2% less second charge mortgage business in May than during March’s recent peak, but the annual comparison is rosier, with a year-on-year improvement of 12%.
Secured lending over the past year has now breached the £800m barrier, with £818m of completions conducted in the 12 months to May 2015, an 18% uptick on the previous equivalent period.
Harry Landy, Director of Enterprise Finance, said: “The spike in secured loan activity in March was always going to be a hard act to follow and subsequently we saw a slight calming in April and May as pre-election uncertainty took hold. With the benefit of hindsight and knowing how conclusive the eventual result was, it can be difficult to remember how unsure people were back in spring. Despite the dip, we are still comfortably above the levels experienced a year ago and significantly higher than the longer-term average. Sustained growth in any industry is often interspersed with slight corrections or plateaus and the slight dip in May is unlikely to point to a wider malaise.
“The annual lending figures prove that secured lending is a sector heading in the right direction, with the £818m lent in the last year easily eclipsing the £694m issued in the 12 months to May 2014. Indeed, this yearly total has almost doubled over the past three years showing that demand for consumer credit has continued to increase as the country has extracted itself from economic turmoil – well and truly spending its way out of recession.”
After rising to £67,468 in April, average loan sizes reduced to £59,358 in May as borrowers sought more manageable second charges. Despite this, typical transactions are still almost 20% larger than they were a year ago.
Average loan-to-value ratios currently stand at 61% having dipped to 56% in March, a return to the norms witnessed at the start of the year. The typical first charge that secured loans sit behind continues to rise, with the average original mortgage size sitting at £254,634.
The proportion of transactions that home improvements account for has reduced slightly to 47%, but they remain the most popular motivator for homeowners utilising secured loans. An increasing number of individuals are taking out secured loans for a blend of reasons, with almost a third accessing capital for renovations as well as consolidating existing debts. Business purchases and buy-to-let deposits are among some of the other reasons cited.
Harry Landy continued: “There is still demand for the occasional six-figure loan, but the majority of applicants are after smaller injections of finance. During the extremely busy spring period we saw average loan sizes rise above £67,000, but this has now stabilised to a level more in keeping with what we’ve seen over the past year. With house prices continuing to rise, many homeowners are deciding to take advantage of this increased equity to beautify their existing properties rather than to move to another property altogether.”
Post-election boom yet to materialise
In the run-up to May’s election, much of the personal finance press and wider economic media was dominated by how the stifling impact that the political uncertainty was having on a variety of markets would be miraculously alleviated after the nation had cast their votes, but with the benefit of hindsight it now appears that this effect may have been overstated.
The upcoming election certainly didn’t deter secured loan borrowers in March, but April and May’s comparatively modest monthly figures suggest that doubts had begun to creep in and there wasn’t quite the post-poll surge there might have been. And while the surprisingly conclusive election result may have made the domestic picture clearer, uncertainty around the wider-reaching implications of the crisis in Greece and the proposed referendum on the UK’s membership of the European Union mean there are still some storm clouds on the horizon.
Another important factor in the slight plateauing of secured loan activity is the constantly improving remortgage rates on offer. With Moneyfacts reporting the average two-year fixed mortgage rate as 2.76% - and products available at more than 1.5% below that – homeowners who may have previously turned to secured loans for a cash injection are now more likely than ever to opt for a remortgage to free up some funds.
Harry Landy added: “Consumer confidence in the UK continues to improve and reached a 15-year high in June, but this buoyancy hasn’t yet translated into heightened demand for secured loans. It could well be that May’s figures came too early to register the post-election relief and this improved sentiment may be more noticeable when we have figures for the summer to hand.
“Looking at how other economic variables have fared since the nation went to the polls, it is only really house prices that have experienced a noticeable spike and mortgage lending remains relatively muted. However, with a number of forward indicators of lending suggesting improvements in coming months and low inflation, falling unemployment and improving wages combining to lighten the mood, we would expect the secured lending market to follow suit over the coming months.
“Competition among secured loan lenders has seen rates become ever more attractive, but they still struggle to compete with the interest rates currently on offer from remortgage providers. Second charge mortgages still represent a viable option for many, but borrowers have never been more spoilt for choice.”
(Source - Enterprise Finance Secured Loan Index)