It may be time for the second charge of the loan brigade

Securing a mortgage is set to become more difficult so canny servicers are offering loans to boost deposits


With continued uncertainty in the housing market, increasing regulation and the ongoing impact of the wider economy, mortgage providers must become even more inventive in attracting and retaining customers.

And servicers will need to develop innovative services to support lenders.

The Council of Mortgage Lenders predicts another turbulent year for the housing market.

House sales in 2010 were nearly half the level recorded before the banking crisis. the majority of brokers believe a lack of available mortgage funding and hikes in the cost of living would wipe out the first-time buyers’ market altogether.

The knock-on effect of this should see a sizeable growth, predicted to be around 15%, in the buy-to-let sector as more people are forced into renting.

The widespread assumption is that entrants will come into the lending market to fuel this demand for buy-to-let mortgages. But will they?

Existing landlords are concerned about tenants’ long-term ability to meet rental payments as latest figures from the Association of Residential Letting Agents reveal a 40% increase in members with tenants in arrears.

Add to this the pending Mortgage Market Review that threatens to force interest-only products out of the market as the customer is expected to have a repayment vehicle to ensure the capital is paid.

Prudent lenders are diversifying with product innovations such as second charge and unsecured loans

Landlords will argue that their product requirements are different to a home owner. But will the regulators feel the same way?

Landlords will also soon start to feel the pinch of the recent hike in capital gains tax from 18% to 28%.

The situation for regular mortgage customers looks just as uncertain.

With base rates at 0.5%, mortgages have never been so affordable.

Yet securing a mortgage is set to become even more difficult.

The predicted increase in mortgage interest rates this year, government withdrawal of lending targets at the end of February and the MMR’s customer affordability rules, all threaten to make mortgage acquisition an urban myth for many consumers.

Against such a challenging market backdrop prudent lenders are already diversifying to survive with product innovations such as second charge and unsecured loans.

Traditionally used to consolidate debts or improve existing properties, lenders are using second charge loans as a way to make mortgage deposits and repayments more affordable.

And it seems unsecured loans are set to enjoy a revival as they are used to boost the size of the deposit on a property to help first-time buyers on to the property ladder.

Many servicers are currently only involved in the first charge loan sector.

But if the CML’s prediction of another uncertain year is realised, loan servicers may stand to lose some of their market share.

Prudent servicers will be looking to diversify into other sectors and the second charge sector seems a logical place to start.

Multi-skilled service providers will be best placed to meet this market demand – making diversification key to business survival.