When I wrote a column back in February one of the prevailing conversations at the time was about why the second charge market was not racing ahead nearly a year after MCD. At the time, I suggested that expectations of immediate stratospheric volumes of business were far too premature and that it would be a slow burner rather than an overnight success.
Six months later and with steadily growing volumes of new business, second charge lending is seeing a consistent increase month on month and that along with the steady drop in arrears on existing business is demonstration enough that the ‘slow but steady’ analysis was the right one.
More reasons to be cheerful
The July announcement by Optimum Credit of a successful securitisation demonstrates the growing importance and status of the second charge market.
It is now nearly 10 years since the credit crisis that froze the securitisation market. Securitisation activity amongst first charge lenders has been increasing for the past few years, but this is the first one from a second charge lender. For all of us whether fully engaged in the sector as we are at Fluent, or in the wider lending market, this is a significant moment.
A successful securitisation sends a signal that the capital markets are now open for business to the second charge sector. Access to funding will become easier and other players will be encouraged to follow where Optimum has led.
For the wider market, it demonstrates that the investment market has an appetite for good quality loans. It only adds to the good news that continues to support the wider acceptance of secured loans as a viable alternative to remortgaging.
The adviser community has understandably wanted to see real evidence of the standing of the second charge market. Along with the growing new business figures and falling arrears and repossession data, the successful securitisation by Optimum Credit very much offers real proof that the secured loan sector is deserving of a place at the lending top table.
Hearts and minds
It is still too easy to disregard secured loans when assessing the optimum way for clients to access funds for capital raising.
The reasons for advising a client to accept a secured loan are very clear and easily assimilated when they are introduced as part of a broader based discussion on capital raising. Fluent has been at the forefront of a broad strategy of engagement with the broker community through our intermediary dedicated arm, Fluent for Advisers.
Regulatory endorsement alone was never going to persuade advisers to adopt secured loans right off the bat. One of the first things we had to reinforce was that secured loans are not and never will be a straight substitute for remortgaging. I think many brokers felt that they were being railroaded, but once they understood in our seminars that was not the case, then it became easier to demonstrate when and where a secured loan was worth considering.
However, I think there is still resistance to the concept that remortgaging might be the wrong advice. Most of that is based on three main factors. A past perception of secured loans, a view of costs that does not actually bear proper scrutiny and an understandable reluctance to try a sector with which they are unfamiliar.
Therefore, that does mean that there are customers going into a remortgage who would have been better served by a secured loan. Those clients could be at a disadvantage on many levels including an extended length of term they did not want for the extra borrowing, a compulsory change to C&I repayment and seeing their monthly costs increase or the loss of a good long term rate on their existing mortgage, among others.
Changing attitudes to secured loans were never likely to happen overnight, but I believe we are making headway, just not as quickly as I think the situation demands.
Tim Wheeldon is chief operating officer for Fluent for Advisers
