What product is right for you?

However, many worry that they are not getting the best deal on interest rates and charges on their existing credit. Therefore, credit consolidation through a secured loan is often an attractive choice for people who want to reorganise their existing credit arrangements.

No financial product is designed with specific criteria or with customers in mind, so an understanding of the terms and conditions of the agreement is essential. Some would argue that a loan secured against your home is never a good idea and the risks are far too great but, there are many reasons why this can be a viable solution for some.

Firstly, secured loans help homeowners to reduce their monthly credit repayments and offer lower interest rates on existing credit. In households with multiple credit repayments coming out on different days in the month, with varying interest rates and charges, managing money can prove to be quite difficult. For people in this situation, freeing up a significant amount of money each month and getting everything in one place is not just a convenience but a priority. In order to enjoy these lower repayments, consumers are generally fine with paying back more over a longer period of time.  

Secondly, consolidation through a secured loan is an attractive alternative to those who may be unable to remortgage for any number of reasons. Some people may have a favorable mortgage rate that they do not want to lose, or they would like to repay their loan over a shorter period, or they simply don't have the equity. The decision to take up a secured loan or other financial product is ultimately about consumer choice and will not always suit everyone. Any responsible lender will have a screening process in place, credit-scoring all customers to ensure that they do not lend to people who can not comfortably afford the repayments.

With UK house prices jumping 10 per cent last year, it's no surprise that mortgage equity withdrawal has also become increasingly popular in recent years. The average UK home currently costs around £200,000 and consequently for every 1 per cent rise in house prices, an extra £2,000 could, in theory, be unlocked from your home. And when house prices are rising, a certain sense of security tempts homeowners to save less and spend more. This can lead to an increased number of secured loans being taken out.

The temptation to save less and spend more during a property boom is not new and if you look back to the housing boom of the 1980s, it also prompted many homeowners to live off equity from their homes. Last year, £50 billion was extracted through mortgage equity withdrawals, representing almost 6 per cent of take-home pay. This means that borrowers supplemented £100 of take-home pay with £6 of extra home loans to help finance their increasingly expensive lifestyles.

However, while there is nothing wrong with borrowing against our home while mortgage equity withdrawal remains one of the cheapest ways to borrow money, you must be aware that it will take you longer to pay off the mortgage with bigger interest bills at the end.