Barclays' bad credit loan branch, FirstPlus, is closing its doors to new business, in light of falling profits and house prices which are discouraging people from taking out a loan against their home.
The company – which specialises in bad credit loans
that act like a second mortgage – tried to find a buyer last year when business started to dry up, but failed to source one that would pay the premium value of its loan book.
Falling house prices have meant that this debt has become largely unsecured, and homeowners have been warned that taking out a second loan on their home could leave them with negative equity if their home loses value.
Advertising for the company was aimed primarily at providing loans for people with a poor credit history
, and the face of its advertising campaign was maths-whizz Carol Vorderman.
Because using someone who was renowned for their efficiency in maths implied that it made good financial sense to take out a consolidation loan
against their property, consumer charities and the City regulator called on Ms Vorderman to stop lending her image to the company, which they say encourages people to stretch themselves beyond their means, putting their homes at risk.
Another reason for FirstPlus' failure is thought to be the new regulation surrounding payment protection insurance, which accounted for a large portion of the company's profits.
The UK's largest secured lender will retain around 130 employees to manage its existing loan book of £4.7billion, but about 300 people will lose their jobs.
Comparison sites will also suffer, especially moneysupermarket.com, for which FirstPlus accounted for at least 10 per cent of its loan sales last year – it gets a cut every time a loan is sold through its website.
Simon Nixon, creator of moneysupermarket.com has warned that revenues will be down £7million as a result of FirstPlus pulling its loan business. Consequentially, its shares plunged by a third.
"First Plus's announcement that it will not accept any new business from 9 August is a huge blow to the debt consolidation market." said Mr Nixon.
"For people with multiple unsecured debts, often at high rates of interest, the option of using a secured loan at a lower monthly payment to reduce their outgoings has been extremely attractive. For many though this option will disappear because, while there are other secured loan providers in the market, their capacity to lend is likely to be limited."
The news of FirstPlus' demise means that just seven players remain in the personal loans market, compared to the 18 which existed before the credit crunch struck.
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