Secured Loans - still available?

Are secured loans still available? With property prices falling and the credit crunch upon us, you might expect secured loans to be less available than they once were - and you'd be right. However, it's important to see each of these factors in context.

First, property prices - a key part of any secured loan decision. Prices are falling, but they're falling from an historical high. According to the Nationwide House Price Index, the 'average house' was worth £164,654 in August 2008. That's:

* over £21,000 below its October 2007 (peak) price, but
* over £22,000 above its March 2004 price.

After almost a year of falling house prices, the 'average homeowner' is still left with a significant profit, as long as they've owned that house for a few years or more. Of course, that profit isn't really cash, but some of it can be turned into cash with a secured loan, provided the homeowner makes an informed decision - when prices are falling, it's vital to think very carefully about the future of the housing market and whether it makes sense to free up some of their equity through a secured loan. Turning too much of that equity into cash could leave the homeowner facing negative equity if house prices fall far enough.

Second, the credit crunch. Like other forms of credit, secured loans are affected by the credit crunch - secured loan providers have become more 'risk averse' and unwilling to lend. This is largely about confidence: loan providers are also finding it hard to get credit, and they're not sure how much of the money they've already lent out they'll actually recover.

However, the authorities have taken - and are still taking - steps to reinforce confidence in the credit markets. The Bank of England's Special Liquidity Scheme aims to 'improve the liquidity position of the banking system and increase confidence in financial markets' (basically, provide lenders with both the means and the confidence to lend).

As far as individuals are concerned, the Scheme means secured loans and other forms of credit are more available. The Scheme lets lenders temporarily swap some of their assets for Treasury Bills. Since they can use these Bills as collateral and borrow from other financial institutions, they're more confident about granting credit, from secured loans to unsecured loans and other kinds of credit.