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Second charge sector divided over growth plans

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The second charge market is divided over plans for delivering much needed growth, with firms backing several possible solutions.

The Mortgage Credit Directive was predicted to give the market a boost by bringing in rules whereby brokers must make customers aware of second charge loans as a remortgage alternative.

The same regulation proved to be a double-edged sword for the market because its tougher affordability criteria ruled out many customers.

New second charge lending business fell by 6 per cent in value, to £69m, and 11 per cent in volume in January compared to December, according to the most recent data from the Finance & Leasing Association.

But the second charge market has drawn up several ideas intended to promote the sector, Mortgage Strategy can report.

The first is for the sector to have its own trade body.

London Money Loans director Scott Thorpe, who had the original idea, says: “We need to be heard outside the introverted and, to some extent, self-serving cocoon that currently exists in the industry.

“We need a board of lenders, packagers, brokers and even consumers to help get the second charge market ratified by those who can help it grow.”

The idea is supported by brokers including Hayes Finance and Libra Financial Planning and by lenders including Masthaven.

Masthaven head of sales Jon Sturgess says: “It is without a doubt that the second mortgage market is underserved in respect of having a trade body or representation at the table of mortgage lenders.

“I think there is certainly merit in Scott’s idea of formalising a trade body to help promote the second charge market as this can only help strengthen the message that so many lenders and brokers are already promoting.”

But some firms in the second charge market are sceptical of the idea.

Y3S Group director Matt Cottle says: “Anything that helps to grow the market is worth discussing, and I’m open to other people discussing those things, but it’s not for me.

“I can’t see the need for a trade body, because I think the market is too small for it.”

Brightstar chief executive Rob Jupp says: “The Association of Finance Brokers supports the seconds community really well, and rather than reinventing what is already there, with greater cost, why not just support what is already there to give it additional resources to do an even better job?”

Another idea is for firms from the second charge market to fund a campaign to promote the sector to consumers. Mortgage Strategy understands a group of lenders is already discussing the notion.

Key Retirement director Dean Mirfin backs the idea of an industry-funded campaign.

He says: “Consumers don’t go looking for second charge loans. What second charge has to try and do is get customers to a point where they ask brokers about second charge.”

Last November saw Key Retire­ment appointed representative V Loans leave the second charge market. Mirfin adds: “That was absolutely the issue we had with V Loans. We knew the big change that had to happen was with consumer behaviour.

“The plus side is the industry has a captive audience who should want to be educated on the subject. But if brokers aren’t able to do it at the point of sale, the only other option is to get that PR machine going.”

A third idea is for a product levy to create a fund to promote the market.

Scott says: “If the average run rate is currently 1,300 completions per month, why not deduct £50 at source, which can then be directed to help grow the industry? This could give the best part of £750,000 as an annual marketing budget.”

But Cottle says: “For me, we’re going to write 20 per cent of all secured loans in the country this month through Y3S.

“I wouldn’t want to finance the rest of the market, which is struggling to grow, because a lot of people are not willing to pick up the phone and work as hard as we do as a broker to generate the business.”

Some say the obstacle to greater second charge uptake is that brokers prefer to recommend remortgages to clients.

Speaking to Mortgage Strategy earlier in March, Paradigm Mortgage Services mortgages technical director Christine Newell said: “Most brokers are still somewhat confused about the process of recommending a second charge mortgage as an alternative solution.”

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