Life in the old dog yet

From a point where many thought the market might never recover, second-charge mortgages have (some might consider) produced a Lazarus-like resurrection particularly over the course of the last 12-18 months. This was a sector which, immediately post-Credit Crunch, was not just considered the black sheep of the mortgage family but was cast out and thought never to be able to return again.

How times have changed. The resurgence in second-charge lending has been self-evident for some time however if you were looking for some recent statistics I would point you in the direction of those from the Finance Leasing Association (FLA) which revealed that second charge mortgage business in September this year grew (year-on-year) 41% by value and 17% by volume.

It has been something of a remarkable turn-around and if competition is any sign of a sector’s health then you would have to conclude that the second-charge market is currently ruddy of cheek. Not only do we have an increasing number of lenders actively seeking business, but we also have a growing band of ultra-competitive master broker/packager firms all chasing introduced broker business. In not so many words, if you are an adviser looking to be more active in the second-charge market then you will not be short of firms seeking to partner with you.

So, why might this be? Well, quite clearly demand for second-charge mortgages has increased considerably and there are a number of underlying reasons for this, not least the fact that we have large numbers of borrowers either unwilling or unable to remortgage.

The former group might now find themselves on mortgage deals which one does simply not move away from – remember the raft of incredible lifetime tracker rates from many years ago. Savvy borrowers who picked these up – many of which will be paying 1% or less – are not going to be inclined to move anytime soon with rates remaining at record lows. However, this does not mean these borrowers are not in need of capital therefore a second-charge mortgage can be the right option in order to secure this funding. If you wanted another clear sign of the underlying strength of the second mortgage sector at present then you only need look at the remortgage market which continues to bump along the bottom, and probably will do so until those first few Base Rate increases are made.

Like any sector of course, the spectre of regulation does hang heavy over the second-charge market and practitioners and stakeholders would do well to be aware of what is coming over the horizon because it will change the nature of the sector. In September this year the FCA outlined how it will move second-charges from its consumer credit regime to be governed instead by its mortgage rules – this means a considerable (not necessarily unwarranted) upheaval for all those active in this market. Indeed, you get the impression that the regulator has been less than impressed by what’s been going on in the second-charge market up until this point. It wants tighter MMR-esque controls covering sales practices, affordability assessments, responsible lending, handling payment difficulties etc, and the easiest way to achieve this is via the mortgage rules themselves.

Which all means that from March 2016 second-charges will be regulated under the mortgage rules and therefore everyone involved is going to need to ensure they’re compliant with them. Greater regulation equals greater cost for all and therefore we shouldn’t be surprised to see a much changed second-charge market in just over 15 months than we have now. For a start, firms are going to need to get authorised to carry out second-charge mortgage business plus there will be the added necessity of data reporting, etc.

For those advisers considering their second-charge option, the first port of call should probably be the highly active master broker/packager operators. These are the businesses which will be able to provide plenty of background information and support in terms of placing business, not forgetting the fact they have access to all lenders and products at the tap of a button. Those not opting for this distribution method will find themselves having to trawl through many many lender offerings in order to secure the right deal.

The good news is that the second-charge market looks likely to maintain its upward trajectory for some time to come. All the news coming out of the economy and the MPC suggests it will be reluctant to increase rates anytime soon and therefore those borrowers on these incredibly competitive long-term lifetime tracker rates will not wish to move elsewhere. The second-charge market seems destined to benefit from this news for the foreseeable future.

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