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Second-charge optimism is shining through

Barney Drake

May 10, 2021

Barney Drake is chief executive of Specialist Mortgage Group

The latest figures for the second-charge market, from the Finance & Leasing Association (FLA), make for positive reading.

It found that the value of new business for March came to £88m, the most positive month for new lending in a year, while the number of new loan agreements is now unchanged from last March.

It is an encouraging demonstration of how the market has picked up from the difficulties posed by the pandemic.

Fiona Hoyle, the director of consumer and mortgage finance at the FLA, said that members of the trade body were “increasingly optimistic” about the outlook for the market, and in my view that optimism is shining through in the way that lenders have behaved over the last couple of months.

There’s no escaping the fact that lenders in the second-charge market are raising their game and revamping, not only by product, but also by the way they lend.

Some are competing on price, unveiling new product ranges that are genuinely eye-catching on rate alone, while others are looking again at their lending criteria and identifying ways to open up their products to groups of borrowers who might ordinarily be excluded from the seconds’ sector.

What’s happening across the board, even from those lenders who aren’t adjusting their products, is a wholesale improvement in the level of service on offer.

Whether it’s greater use of technology or simply a revision in their lending processes, the industry as a whole is doing a fantastic job in looking at how it works with fresh eyes, and finding new, innovative ways of delivering a more efficient and satisfying experience for everyone involved in each case.

Compare the market today to the seconds market we saw just a few months ago, and the difference is extraordinary.

This is a market where the lenders are not just open for business, they have a particularly strong appetite to lend, and are launching products that opens up this sector to a wider range of prospective borrowers.

The road ahead

This positive approach from lenders would be encouraging enough in normal times. But these aren’t normal times, with the clear expectation that there are some future headwinds.

There are plenty of borrowers whose finances have been somewhat tested over the last 12 months.

Some will have raised debt to keep their heads above water, and with the prospect of more job losses ahead, there’ll unfortunately be a rising number of homeowners in a similar position in the months to come.

For these borrowers, the prospect of cutting the cost of those debt repayments by consolidating those loans through a second-charge mortgage will be incredibly attractive.

That’s a whole swathe of new borrowers for whom a second-charge mortgage may be the most suitable option.

It’s not just borrowers who have had financial difficulties though. We’ve all spent far more time than usual at home over the past 12 months, and there have been an awful lot of conversations across the country about how we could adjust our homes to better meet our new circumstances, particularly for those who are going to be working at home for at least part of the week for the foreseeable future.

Significant numbers of those homeowners won’t want to disturb their existing mortgage, and incur ERCs that come from remortgaging for a higher amount, but have sufficient equity built up in their property, that a second-charge mortgage can adequately access to raise sufficient funds to pay for their intended home improvement project.

Hoyle said that the FLA expects to see a “strong rebound” in the second-charge market over the next year, but frankly I think that may be underplaying it.

The number of people for whom a second-charge loan could help is only going to increase, and this, coupled with a positive approach from the industry’s lenders provides the prospect of promising times ahead for seconds.


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