We all know that credit cards and mortgages have been proving more difficult to obtain in the last few months.
Now, it seems that secured loans are under threat too.
This is because Barclays has withdrawn from the secured loan market. It will stop offering new loans from August 9 but those of you who have existing loans will not be affected.
Barclays provided homeowner loans through its Firstplus business, which is best known for its TV adverts featuring Carol Vorderman.
The freeze on new business will leave its 128,000 existing borrowers unaffected, but about 300 jobs will go from a staff of 430. About 130 people, who also process loans for the Fair & Square brand, Barclayloan and Barclaycard, will be retained in Cardiff to look after existing customers. Barclays said its decision was a result of "slowing demand".
In recent years Firstplus has generated hundreds of millions of pounds in profits for Barclays. Firstplus has targeted those of you unable to raise further finance from your existing mortgage lenders. Because loans were secured against the property you could trigger a default and repossession if you failed to maintain repayments.
It was also revealed that Carol Vorderman is to quit after 10 years fronting their TV adverts after her contract with them came to an end. Anti-poverty campaigners have argued that Firstplus encouraged you to over-extend your borrowings and accused Vorderman of exploiting her reputation as a maths expert in their adverts.
Two years ago moneysavingexpert.com launched a campaign to persuade her to step down, but she refused. It claimed the lender made much of its profits from the sale of insurance to protect loans. A clampdown on the sale of payment protection policies was cited by analysts as another reason for a likely downturn in profits.
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Barclays has consistently maintained that Firstplus (which it acquired through the purchase of Woolwich in 2000) was a responsible lender and defaults matched the industry average.
Analysts said it was likely that there was still demand for secured loans, but that potential customers were likely to have poor credit histories. They also said it was likely the costs of raising loans had become prohibitively expensive for Firstplus as it had for most lenders.
A secured loan (or homeowner loan) is one that is secured against a property that already has an existing mortgage. (This is why it's also sometimes called a "second mortgage". Confusing, we know!)
In recent months, secured loan providers have been tightening their lending criteria just like mortgage lenders have. Firstplus recently reduced the ratio it is willing to lend up to, from 125% of a home's value to 95%.
Last year, Barclays tried unsuccessfully to sell Firstplus and Neil Radley, managing director of Firstplus, commented:
"In the past year we have tried a whole range of activities to develop our business but the market demand simply isn't strong enough. We recognise this is a difficult time for our people and will be providing all those affected with support and assistance."
Firstplus said the drop in business was the result of customer fears that falling house prices would leave them in negative equity after taking out a second mortgage.
Need a secured loan and having difficulty getting one? We can help you get sound advice from a loan specialist who can help you with all current loan options.
- Moneysupermarket affected
Moneysupermarket, the financial website, said the loss of Firstplus would hit its business this year and cut profits and appeared surprised that Firstplus’ move was down to a lack of business. The website has a strong relationship with Firstplus, promoting the loans across its site and had negotiated an exclusive interest rates for customers who applied for secured credit through its website.
Tim Moss, head of loans at Moneysupermarket.com, said:
"We've seen the number of applications for secured loans grow in the last year, as the credit crunch forces people to consolidate their debt. Moneysupermarket had a really good volume of applications going through before this announcement."
Rival comparison website uSwitch said the demise of Firstplus was "a huge blow to the personal loans market and another signal that the consumer credit market is quickly drying up".
A spokeswoman said the departure will leave just seven providers in the secured loan market, down from 18 last year before the credit crunch hit.
What do you make of Barclays’s decision; is it the right thing?
And do you think the secured loans market will be the next to suffer at the hands of the credit crunch?
Why not let us know in the comments?