First Plus have announced they will cease lending to new borrowers on the 8th of August 2008.

Homeowner loans have decreased in popularity over recent months with rising rates and lenders reducing the maximum loan-to-value on their products.

Secured loans became more popular a few years ago when house prices started to take off.

Lenders were prepared to offer up to 125% of the value of people’s homes on the basis that the property being used as security was likely to increase in value by at least that much.

Consumers were therefore able to borrow money against the projected value of their homes and gain access to funds based on hypothetical security.

Borrowing 125% of a property’s value automatically puts the homeowner into a ‘negative equity’ situation and this type of ‘high-risk’ lending in America is seen to have been a major contributor to the current ‘credit crunch’.

Firstplus have been the only secured loan provider to keep it’s maximum loan-to-value at 100% but compared to 125% this meant a significantly reduced the number of potential customers.

Coupled with current market conditions and uncertainty the demand for Firstplus homeowner loans has drastically reduced and brought about the decision to halt new lending.

The existing 128,000 customers of Firstplus will still be looked after.