Secured Loans Watch: Second charge on the up
As 2019 draws to a close, John Lewis’s festive missive does the rounds and people sing REO Speedwagon for the first time since 1984 (with optional air grabs), it’s a good time to look back at how the world of second charge mortgages has evolved over the past 12 months. And what a year it’s been.
With a latest annual lending figure of £1.2bn, the Finance and Leasing Association results released in November show an 18 per cent year-on-year increase in new loans. There were similar month-on-month trends with a 20 per cent increase in lending. That equates to an impressive 2,355 second charge mortgages completing over the month, bringing the annual total to 27,092 loans.
The FLA has also reported lowering levels of repossessions and is predicting a record low for the year as a whole. The number of second charge mortgage repossessions in Q3 2019 was 25 – 30.1 per cent lower than in Q3 2018. As a percentage of outstanding agreements, the rate of second charge mortgage repossessions was 0.06 per cent in the last reported 12 months.
Today, second charge mortgage rates start from 3.47 per cent for residential and 4.49 per cent for buy-to-let. For the right customer scenarios, these attractive rates make second charges a compelling alternative to further advances and remortgages. As they nudge more into the mainstream, we have certainly seen an increase in awareness and popularity with both intermediaries and their clients.
Supply and demand
Like most growth markets, second charge is driven by supply and demand; arguably, in the reverse order – demand and subsequent supply – although I fear I may have wandered into the chicken-and-egg debate here.
Our director of mortgages, James (Jimi) Byrne, who runs Positive Lending’s second charge mortgage desk and meets regularly with lenders, says: “The second charge market is definitely up. While several first charge lenders have tightened their lending criteria, many second charge lenders, both mainstream and niche, have revised and enhanced their lending criteria in 2019. This is good news, as it has further opened up second charges for consideration by more potential borrowers and their brokers. With more lender competition comes product innovation; for example, the recent product launch designed to help borrowers with Help to Buy schemes has been well received.”
It is certain that some borrower demand for second charges has been generated by the political and economic uncertainty. At the time of writing, we are heading into the Christmas general election. While Savills has just announced its prediction for a 15 per cent rise in house prices over the next five years, it’s reported that we are in a 10-year low for new-home sales. With house pricing and sales uncertainty, many homeowners are opting to ‘improve rather than move’, refurbishing or extending their main residential property. In these circumstances, a second charge mortgage can be helpful.
Another factor is the trend for longer-term fixed-rate first charge mortgages where rates are comparatively low. However, these longer-term fixes often come with early repayment charges; rather than incur these, borrowers looking to raise capital may find a second charge the viable option where fixed rates are available without ERCs.
As a specialist distributor, we support thousands of brokers and their clients with second charges from a whole-of-market lender panel. There are many reasons why a borrower raises capital using a second charge mortgage. In 2019, we have seen borrower trends for: debt consolidation, home improvements, purchase of a second property, funding a child’s first home deposit, investment purchase, business funding and payment of tax bills, to name but a few.
Looking at the lender landscape, a handful of new lenders have launched this year. In Q3, Shawbrook relaunched its improved second charged range. Additionally, many existing lenders sharpened their pencils, improving both their product and service propositions. Between them they have created a competitive and exciting sector to be involved in.
Several lenders deployed new fintech solutions to speed up the lending process and provide better customer service. For example, this summer UTB launched its facial recognition ID verification, which, using a smartphone app, means an ID check can be completed in 90 seconds.
Last week I was asked for my 2020 finance market predictions. Never have I struggled as much to answer this question. Clarity will hopefully come following the general election and the plan for Brexit. Until then, it’s incredibly hard to say. What I do know is that the second charge market has matured exponentially.
Anna Bennett, marketing director, Positive Lending