The second-charge market is gearing up for a big 2021. There’s no denying that, for a lot of the market, the last 12 months have been difficult.
Barney Drake is chief executive of Specialist Mortgage Group
The second-charge market is gearing up for a big 2021. There’s no denying that, for a lot of the market, the last 12 months have been difficult.
The latest figures from the Finance & Leasing Association show that the number of second-charge deals in the 12 months to February was down by 46% on the year before, while the value of those loans dropped by half.
Yet Fiona Hoyle, director at the trade body, was spot on when she said that as the economy re-opens and borrower confidence improves there will be a “strong rebound” in the second-charge market.
It’s been hugely encouraging to see the way that second-charge lenders are acting currently. The last couple of months have seen them unveil significant changes to their product ranges, making second-charge loans far more appealing.
In some cases, it’s been revising the maximum LTVs on offer. There is no clearer example of this than West One, which turned heads with its campaign confirming it was moving back to 85% LTV on its second-charge offering.
For other lenders, it’s been a change to their lending criteria. UTB, for example, has removed the monetary value when assessing adverse credit units, while we have also seen far more competitive pricing with a host of lenders slashing rates and delivering tremendous value, such as Together’s variable rate of 4.29% up to 75% LTV.
Optimum also removed its LTI requirement for LTVs up to 80% - a first for them - while also allowing self-employed applicants with just 12 months trading.
Such outstanding product changes are extremely important for a few different reasons. Firstly, they send a clear message that lenders are open for business and actively looking to lend.
This isn’t something that should be taken for granted when you’re (hopefully) coming out of a global pandemic. That these lenders are hunting for market share, and identifying how they can do things differently, is a great sign that they have secure funding in place and are looking to compete.
But what’s also fantastic about these revisions is that they broaden the appeal of second-charge loans. By pushing up those maximum LTVs, by loosening the lending criteria, by making them affordable, lenders are moving the goalposts in a positive way.
It’s opening up this form of credit to a much larger group of borrowers; the exact borrowers for whom a second-charge loan could make a huge difference to their financial health.
Product and criteria changes are the obvious changes, but lenders have got the message on service too.
Across the board they have gone back to the drawing board, identifying ways they can work more efficiently and process cases in a speedier and slicker way.
We know from the experience of our clients just how those service changes are leading to a more satisfying experience, with borrowers getting their hands on that money in a much more positive timeframe.
Debt consolidation remains one of the biggest drivers of second-charge activity, with borrowers typically bringing together a handful of different loans into a single second-charge deal.
Indeed, the latest tracker from Evolution Money found that the typical debt consolidation borrower brings together five existing debts, at an average value of more than £15,000.
Given the economic difficulties ahead, the need for debt consolidation is only likely to grow. Plenty of borrowers have taken on various forms of credit to help get through the last 12 months and could benefit from consolidating those debts into a single loan.
This sort of borrowing can politely be described as challenging when you head to a high-street lender, yet the situation could not be more different with the main players in the second-charge market.
Second-charge lenders are actively looking for this business, recognising how these loans can transform a borrower’s finances, leaving them on a surer footing in future.
Yes, there are undoubtedly some tricky times ahead. But, at the moment and looking further into the future, the positive attitude and approach of our second-charge lenders is a real cause for celebration and optimism.
