And so this is Christmas, and what have we done? The cynical amongst us may answer ‘not an awful lot’ but there’s actually more to be cheerful about than one might think.
At the start of 2017 there were plenty of hopes that 2017 would be the year that we saw major progress in the second charge market. The previous year had seen the Mortgage Credit Directive come into play and the months that followed saw some turbulence as the rules bedded in. 2017 therefore was poised to be the year we saw some real change. And I think we’ve actually seen some. There’s been no major light bulb moment but maybe there’s doesn’t need to be. To use a festive analogy, we’re not quite seeing the star of Bethlehem but certainly lots of little Christmas lights twinkling away.
After a fairly flat start to the year, since Summer we’ve noticed a definite upturn in enquiry levels. And, with interest rates rising we may well see a surge in business in 2018. After an initial flurry of remortgages as borrowers vie to secure a good rate before they disappear we’re likely to see more people opting to tie in for longer and seek alternative forms of finance when they need to raise some cash. Enter stage right second charge.
Average loan amounts are also rising, currently 15% up on last year at £65,000. Interestingly, the loans our packaging arm deals with tend to be slightly higher. This is not surprising as some brokers may prefer to refer the smaller deals and keep hold of the larger ones which offer better remuneration. This is, of course, our average and the rest of the industry may differ. It’s also worth noting regional bias will be a factor – there will likely be larger averages for southern firms.
The evidence suggests that brokers are still more comfortable referring than selling. In the pre-MCD days under 60% of our business came through referrals. The rest were packaging cases. That has risen to 70% in favour of referral Again this is our experience – other may differ. Indeed, some master brokers didn’t have a packaging arm pre-MCD so were 100% referral. Others have entered the market since the regulatory shift and only offer packaging so are 100% the other way. As one of the very few with a consistent business model throughout we are well placed to draw the comparison.
From a customer point of view we’re certainly seeing an increase in customers using second charge loans for credit repair. Borrowers are opting for second charges to pay of IVA’s and mis-sold debt management plans so they can get back to mainstream lenders – or move house. It’s worth pointing out that they probably should have been offered mortgage or loan products in the first place but why dwell on the past?
Home improvements remain a popular reason for seeking a second charge but, interestingly, we’re not just talking about adding a new kitchen or a fancy bathroom suite now. We’re seeing some significant refurbishments or rebuilding. This suggests people are deciding not to move but rather to stay put and extend. One can understand why. Choosing this option means there is no stamp duty to pay and allows them to keep hold of a great first charge rate. There’s also that little matter of Brexit and the uncertainty and chaos that is causing – it’s no wonder borrowers might be deciding against any big moves just yet.
We’re seeing more activity in the buy to let sector with investors raising second charges for deposits on their main residence or on a BTL to increase their portfolio. This perhaps shows brokers are thinking about this as a solution more than they did but also demonstrates the resilience of the buy to let sector – despite some of the most tumultuous years the sector has ever experienced landlords are still keen to find ways to invest.
From a rate point of view the market has certainly bottomed out – and understandably so since we saw some pretty impressive rate falls over the last couple of years. That said expect lenders to continuing tinkering with rates but once lender fees are factored in I don’t expect to see any reductions in cost to the consumer. Going forward I think lenders need to play on the risk curve or, even better, identify something others deem to be a risk which they can manage better and therefore consider acceptable
Lenders need to continue to consider cases outside criteria and then extend their policy accordingly. Some are good at this and actively look for a positive in the application to make a marginal case a good case. This is proper old fashioned underwriting and it’s obvious that a set of criteria can’t deal with every scenario or the trade offs needed to make a marginal case a good case. Looking ahead to 2018 lenders need to continue taking this type of view to deliver suitable and bespoke outcomes for consumers and allow brokers to prove the benefit of really knowing their customers and their lenders. Matrix underwriting simply can’t deal with the all the real world scenarios we encounter on a daily basis.
So, to sum up, has the year been positive? Yes, we’re certainly moving in the right direction. Is there still a lot of be done? Absolutely. Indeed, in many ways we can recycle all of the New Year’s resolutions and forecasts from last January. And so we go again. As you were.
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.