It remains an exciting time for second charge mortgages but distributors still have a lot to do to engage intermediaries
The latest second charge figures from the Finance & Leasing Association show that £879m of new lending was achieved in the 12 months to 30 November – up 7 per cent on the previous year. November itself delivered £77m of new lending, albeit this was unchanged from the year before.
All in all, not a bad set of figures. However, the customer proposition has evolved dramatically since seconds became part of MCOB last year, and these statistics tell us there is still plenty of work for distributors to do in terms of intermediary engagement.
Lenders have played their part on product provision, rates and appetite to lend. There has also been a shift in fee models within master broker propositions since the introduction of the Mortgage Credit Directive, resulting in lower charges. Seconds provide fertile ground for intermediaries who want to remain compliant and ensure they have access to the right variety of products to suit their clients.
So what points should intermediaries be aware of regarding second charge? Well, much as there is continuous market chatter about first charge rates, the same is true in our sector. Second charge rates are at an all-time low, which, when considered against other options such as a remortgage or an unsecured loan, make them worthy of consideration.
Take the market-leading seconds rate of 3.83 per cent: a £50,000 second charge mortgage taken over a 25-year term would cost £260 a month.
In terms of criteria, we are also seeing a recognition of changing borrower needs and intermediaries are being shown that the opportunity for much larger second charge mortgages is now a reality.
Another reason to look seriously at the seconds market is its direct relationship with remortgage levels. We all know the latter have been driving overall mortgage activity recently; however, even with lower rates and perhaps a greater willingness to refinance, this does not mean every client should be remortgaging.
What about customers who would prefer to leave their main mortgage undisturbed?
They may be far more comfortable taking a second charge over a shorter term so they can pay back the additional debt more quickly. We should not underestimate a client’s desire to secure additional finance and pay it off sooner rather than later.
And for customers who want to remortgage but are declined, there are options from second charge specialists that will take cases with recent arrears and adverse credit. A remortgage ‘lock-out’ should not necessarily mean the end of the road for such borrowers.
We cannot underestimate the responsibilities of intermediaries post MCD. There has been a great deal of worry about complying with MCOB 4.4A.8A, which requires brokers to signpost the alternative finance options. But having hard evidence of second charge engagement and compliance on file will provide certainty and peace of mind, especially when a remortgage has been arranged.
All in all, it remains an exciting time for seconds. Of course, not all intermediaries are experts in this area and many will want to use a master broker they trust. That relationship will benefit intermediaries and their clients, and should result in ongoing growth from the second charge market during 2017 and beyond.
Steve Harness is commercial director of The Loans Engine