The company is reputedly the first in the UK to market with a HELOC, a type of second mortgage that enables homeowners to borrow against the value of their home and access cash
There is a “massive opportunity” for the UK mortgage industry to market home equity lines of credit (HELOCs), which could potentially generate £25bn a year in originations, Hubert Fenwick, co-founder and CEO of fintech Selina Advance, has said.
The company is reputedly the first in the UK to market with a HELOC, a type of second mortgage that enables homeowners to borrow against the value of their home and access cash.
However, unlike a second charge mortgage, a HELOC allows the borrower to draw out money as needed instead of a lump sum. HELOCs are a more common mortgage product in the US, where they are normally used to pay for home repairs, renovations, and even education courses.
Speaking to Mortgage Introducer last week, Fenwick said there was a large untapped market for HELOCs in the UK.
He said: “If you look at the scale of the US market – $130bn a year on a one-to-one basis – that would imply the market is about £25bn (in the UK). That’s about 20 times the size of a second charge market.”
A 2016 report by data analytics firm Corelogic noted that the HELOC market reached a peak in the US in 2005, when originations totalled nearly $364 billion, dropping to roughly $150bn in 2015, although a separate 2017 report estimated that demand for the product would double by this year.
Since 2020, when Selina Advance gained regulatory approval for consumer lending, the company has made more than $100m in loans with HELOC products in the UK.
The firm recently raised $150m in series B funding, while existing investors are also participating to raise $35m in equity. In addition, $115 million in debt was secured from Goldman Sachs to fund further expansion towards a first public securitization.
Fenwick, who co-founded the company with COO Leonard Benning in 2019, went on to explain the advantages of the product. He said: “The main attraction is it does not affect (a borrower’s) mortgage. It sits on top; a lot like a second charge. But it is also flexible, so you don’t need to draw down at any point. It’s like a credit card in that you only pay interest for the funds you need.”
He also pointed out that there are no early repayment charges with a HELOC and that the borrower is not strapped into higher interest debt. “You’re not tied in any way. You don’t have to draw everything which you are approved for, so it really is empowering for homeowners.”
According to a report by US personal finance company, Nerdwallet, the main drawback of a HELOC is that it increases the risk of foreclosure if the borrower is unable to repay the loan. It’s also not suitable if the borrower’s income is unstable, or if they can’t afford the upfront costs.
Fenwick, however, stressed that the company wanted to be “very incentive aligned with our borrowers”.
He said: “The maximum we’ll enter is 85% LTV, so we’re always keeping a decent chunk of equity in their homes – and they’re incentivized, obviously, to preserve that value.”
He pointed out that while some second charge lenders lent up to 120%, Selina Advance would not follow suit. “We want this to be a financial empowerment tool and to allow people to make smart financial decisions and save money. We don’t really see this as a tool to just add more leverage or get more debt.”
Asked why the product had not caught on earlier in the UK, he said: “The UK banking system is very oligopolistic. There’s been very little innovation in many areas. They have huge mortgage businesses, huge credit card businesses, huge
current account businesses, but they’ve not actually focused that much on creating new products that really benefit homeowners.”
Although Fenwick said he expected demand for HELOCs “to rocket in the UK over the next five years”, he added that it would take time to educate both customers and mortgage advisors.
“We’re building a very long-term business – you don’t educate a market overnight,” he said. “The US pioneered credit cards, but it took the UK about 10 years to catch up and now credit card utilisation and penetration is almost identical in the UK as it is in the US.”
