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Second charge proposals could slash lending volumes by 20%

Lending volumes in the second charge loans market could fall by as much as 20 per cent as a result of the FCA’s new second charge proposals.

In its consultation paper on how the directive would be implemented in relation to second charge loans, the FCA says it will fold second charge regulation into its mortgage regime and has made a number of proposals around how this would take place. The rules largely mirror those of the MMR and will mean all second charge sales are advised. 

As the proposals stand, the regulator says between 10 and 17 per cent of consumers would no longer be granted a loan, while 22 to 30 per cent of consumers would find they are able to borrow less than before the proposed changes.

The FCA says in the consultation paper: “As a consequence of our proposals, using the subdued period between 2009 and 2011 as our basis, our modeling would indicate a reduction in lending volumes of around 20 per cent.

“This would imply a reduction in the volume of lending in the second charge market of around £100m.”

The regulator also asserts that the cost of implementing the new requirements around second charge loans would amount to a one-off cost of £85,000 and ongoing annual costs of £35,000 across the broker industry.

A cost-benefit analysis by professional services firm KPMG gave an original annual cost for intermediaries of £640,000, but the FCA says this was driven by a single intermediary’s quoting the “cost of lower conversion rates to the business as a consequence of stress testing” as the reason for this cost.

The FCA then discounted this figure to £35,000, saying:  “We think the intermediary’s response reflects the impact of the reduction in volumes that might be associated with the introduction of the proposed requirement. This is captured elsewhere in our CBA and is not a pure compliance cost.”

Lenders would incur a one-off cost of £330,000 and ongoing annual costs of £225,000, according to the regulator.

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  • aaron noone 26th September 2014 at 8:56 am

    I suspect that if you are offering your home as security, you will go through the same testing and incur the same regulation. There is no real difference in current underwriting/regulation for 2nd’s, should the purpose of loan be business and it be secured on your home.

  • The Cynical Broker 26th September 2014 at 8:13 am

    Looks like another case of the FCA seeing something that works well and deciding it needs fixing !

  • Philip Castle 25th September 2014 at 5:00 pm

    What if a bank wants to take a 2nd charge over a director of a small businesses home. to support a business loan?