Two recent events are threatening the stability of the secured loans market; the global credit crisis and recent amendments to the Consumer Credit Act. Although brokers and lenders have done well from the secured loans market recently, both are carrying out a frank appraisal of the situation in the light of the changes, and they may be forced into making hard decisions about the way forward.

Unlike in other sectors, brokers have to bear upfront costs for all their secured loans applications, such as the expense of valuations, legal costs and searches. When the costs of advertising and administration are added, the conversion ratio of applications to completions must be significant in order to sustain the business and provide a reasonable profit.

The recent credit crisis means that lenders are seeking to improve their margins, which in turn puts pressure on the level of commissions that will be paid to brokers. Lenders are also trying to improve the overall quality of their lending portfolio in order to retain a reasonable credit rating on the market, leading to more applications being turned down and further reducing the conversion ratio for brokers.

To further add to brokers' woes, from the beginning of 2008 consumers will have a longer period during which they can cancel their loan should they change their mind. And, not only is the cooling-off period to be extended but for the first time secured loans valued over £25,000 will also be covered by the legislation. Chances are as they have more time to ruminate on the financial impact of their secured loan application more people are likely to cancel within the cooling-off period - again harming the broker's conversion ratio.

There is growing pressure on financial institutions to improve the quality of their lending - if they are to secure future funds at reasonable rates - and the legislative impact of the amended consumer credit act means that mainstream banks and building societies have also been forced to review their own lending policies.

Brokers play a significant part in placing secured loans business, and unless they can come up with quick ways of identifying which of their applicants are likely to be successful with their application, then they may shift to other areas of the market or leave it altogether.

If the worst scenario happens and lenders and brokers stop promoting secured loans, then many would-be borrowers will find it increasingly difficult to obtain credit at reasonable rates. That, in turn, will lead to further people getting in financial difficulty as a lifeline solution that was previously open to them disappears.

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