Secured Loans Watch: Onwards and upwards in the second-charge world

A strong consumer appetite to consolidate debt is helping drive growth

There is a lot of positivity in the second-charge mortgage market currently. Last month, the Finance & Leasing Association released figures confirming that March’s second-charge new business volumes reached levels not seen since the sector’s previous peak in October 2008. In actual terms, a total of 2,392 second-charge loans closed in March, worth £108m.

This sits against the backdrop of a strong year so far; Q1 2019 results show there were 6,500 new second-charge loans, a 25 per cent increase in new business deals from 2018.

With much uncertainty in the UK’s political and economic landscape, and the potential for interest rate hikes on the horizon, more borrowers are looking to consolidate debt and gain certainty over their financial outgoings.

For many borrowers, it makes financial sense to retain their first-charge mortgage due to a preferable interest rate, or to avoid early repayment charges, and consider a second-charge mortgage.

At Positive, our second-charge mortgage desk is experiencing increased demand for five-year fixed products, particularly those with no ERCs.

Specialist lenders are meeting this demand with a good range of products that offer borrowers certainty of monthly payments and peace of mind.

Interestingly, our first-charge mortgage desk is receiving enquiries for even longer-term fixes. But, although 10-year fixed products exist in the second-charge world, we have had limited intermediary and borrower traction so far.

Wider adoption of AVMs brings a better borrower experience

More lenders are offering automated valuation models, rather than insisting on a traditional valuation model. There are two main borrower benefits of AVMs.

The first is cost-saving. Several of the lenders on our panel offer free AVMs and, for those lenders who offer AVMs at a relatively low cost (around £25), we often absorb the fee.

The second borrower benefit is speedier mortgage processing and quicker access to funds. AVMs can cut up to two to three weeks from a borrower’s mortgage application process.

In our experience, the benefits of AVMs were particularly apparent over the recent holiday period, when surveyors were a little thin on the ground and quick appointments were harder to secure.

Lender improvements #1: More fintech, more finesse

Another step forward is lender investment in more efficient and technologically advanced systems, especially those that integrate seamlessly with our own. Last year, a number of lenders led the way with clever use of fintech. In 2019, we notice many more lenders are catching up.

Lender improvements #2: Good old-fashioned underwriting

The flipside to fintech is people. We are lucky to be supported by a number of second-charge lenders who provide in-house underwriters to visit and sit with our team.

We also have a number of fantastic, dedicated underwriters who sit in the lender’s office.

How does this help? Lenders who truly collaborate with their packager partners offer better support; communication is clear, issues are resolved, and decisions are both quick and sure.

The output is that we are able to provide borrowers and their brokers with faster lending answers, and access to better second-charge funding.

Positive Lending director of mortgages James Byrne says there is healthy lender competition, which is keeping rates low.

He adds that, although there are higher loan-to-value options, the average LTV across the lender spectrum remains at 64 per cent.

The biggest switch in product demand has been for longer, five-year fixed products with no ERCs.

In terms of loan use, the majority are being used to consolidate debt or carry out home improvements. We are beginning to receive more applications for payment of tax bills too.

And finally…

At 2019’s Mortgage Strategy Awards, Positive Lending was announced as the winner of the Best Secured Loan Broker category.

We are incredibly proud of this accolade. It is fantastic recognition for our team of second-charge experts, who work tirelessly each day to ensure intermediaries are able to find the very best loan outcomes available for their clients.

Anna Bennett is marketing director at Positive Lending

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