The average rates for secured loans are beginning to get closer to the rates offered for unsecured personal loans according to research carried out by Moneyexpert.com.

The figures released show that the lowest rate available for a secured loan of £15,000 stands at 5.9 per cent, which is 2.5 per cent lower than the average unsecured personal loan rate of 8.44 per cent for the same amount.

According to Moneysupermarket.com this shows that the housing market seems to be increasingly unstable and is suffering from the effects of the global credit crunch. It seems many homeowners have decided to remain where they are and rely on the homes to help raise money.

Chief Executive of Moneysupermarket.com, Sean Gardner said, “Historically secured loans were seen as something of a product of last resort, but these days they are far more attractive to homeowners who are looking for a competitive rate of interest. Whilst these low rates can include an arrangement fee of as much as £995, the monthly savings to be made by opting for a homeowner loan can still be substantial”

The increase in the fear of debt and the fall in rates have seen more people looking at secured loans, but this is still a risk and could result in the repossession of a home. Gardner said, “It is fair to say that the majority of secured loan customers are those who cannot get an unsecured loan. Many are looking to consolidate debts and perhaps they have a poor credit record, but that is not to say that a secured loan is inherently bad. Home loans can be a lifeline for the applicant, but they should be taken on with a degree of caution.”

Other than the possibility of having a home repossessed, borrowers risk falling into negative equity should the house market fall and leave the property worth less than the amount they owe on it.

Some deals may look more attractive to borrowers due to their apparent low interest rates, but this could lead to broker fees bumping up the costs. These fees paid to the ‘middleman' between borrowers and lenders for assistance in finding the best available loans on the market and are commonly charged through commission based on the eventual amount borrowed from the lender.

The secured loan market is still very much a niche one with brokers and industry bodies inviting new international lenders into the UK arena. It is an attempt to explore ways to overcome the present funding constraints and potential concerns that may arise.

Managing director, Steve Walker of Promise Group, who have been active in looking for new avenues of funding said, “I have spoken to a number of lenders about entering the secured loans market or realigning their current product offering. There is a clear recognition of the opportunity and there is some significant appetite, subject to how they are funded. I am hopeful some of these organisations will be able to overcome these issues and believe the secured loan market offers excellent potential in the coming years.”