The MCD introduced the need for advisers to make clients aware of all options and not rely on the over-used remortgage
With just a couple of working weeks remaining, this crazy year shows no sign of letting up, which bodes well for 2017.
The most positive news recently was Chancellor Philip Hammond’s apparent intent to tackle the housing shortage. While the devil is always in the detail and there is still a white paper to come, the commitment to invest £1.4bn into creating more affordable housing and a wider range of property types is a more significant one than we have seen by any government in recent history.
It could be argued the lack of housing contributes to the second charge loan market, with many such loans intended for home improvements.
There has been a significant pick-up in home improvements since the credit crunch, because people either cannot afford to move or cannot find somewhere to move to. However, this does not remove the increasingly urgent need to build more homes.
Meanwhile, the Mortgage Credit Directive has had an overwhelmingly positive effect on the sector. Many were worried about its introduction but the MCD has turned out to be a bigger PR exercise than any individual firm could have carried out. The directive has helped create more awareness of second charges among both intermediaries and their clients. In turn, this has helped fuel demand: the value of second charge loans increased by 15 per cent in the year to the end of September compared to the same period in 2015, according to the Finance and Leasing Association.
The MCD has also increased the respectability of the market, helping to move it away from the ‘sub-prime’ label it carried pre-2008. The alignment of second charges to the first charge market has made the sector significantly more mainstream, to which the rise in applications is a testament.
The synchronisation with the first charge market has also seen a lot of lenders introduce early repayment charges more similar to those seen on standard residential mortgages. While brokers who are used to writing first charge mortgage business will be completely familiar with this, some seconds brokers may have found it rather foreign.
The real positive of the more competitive market is that rates have decreased continually. There has also been an introduction of a much broader range of product types including discount rates, base-rate trackers and longer-term fixed rates. The days of offering just a standard variable rate are well and truly over, which can be only a benefit to the client.
Spell it out
Now the industry just needs to continue to spell out the virtues and benefits of second charge loans. The ability to compare seconds to remortgages side by side can only help with this process.
The investment in technology that has enabled introducers to compare the costs of a number of products is also helping to take the market forwards.
Fortunately, the Brexit vote has not had a major impact on seconds so far. Some lenders reduced their LTVs on products but, thankfully, this was shortlived. A small number of clients have pulled out of investment purchases but, other than that, we have seen no impact.
The positive to take from this year is that customer outcomes have become the main focus. The MCD introduced the need for advisers to make clients aware of all the options and not rely on just the over-used remortgage.
The revolution in sourcing systems has helped with this. Next year, I expect to see it broadened out to include unsecured loans and a wider range of alternative finance. All of this can be only good news for the end borrower.
Bradley Moore is director of second charge loans at Brightstar