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Do you expect to see less or more second charge mortgage lenders in 2018?

Brexit could boost slowing second charge market

Brexit could boost slowing second charge market

The UK’s decision to leave the European Union (EU) could see an upturn in demand for secured loans, according to Enterprise Finance’s latest second charge report.

The master broker felt that prior to the vote, consumers were increasingly relying on unsecured debt as a method for debt consolidation, but with more uncertainty, borrowers may decide to consolidate their debt to make their payments more manageable. 

Enterprise also felt that should the Bank of England decide to cut the base rate of interest it would make secured finance more affordable. Harry Landy, Sales Director of Enterprise, believed the fundamental drivers for second charge loans were still in place following the referendum.

“Borrowers will continue to need secured finance for debt consolidation and home improvements – the sector’s bread and butter. 

“There may also be more opportunities for lenders, should high street lending decline. However, lenders will have to be responsible, given the uncertainty in the market. 

“This means we may see a decrease in the average loan-to-value ratio to ensure lenders minimise exposure to any future economic shocks.”

The report also found that the implementation of the Mortgage Credit Directive (MCD) had disrupted lending with the additional regulation seeing a 41% fall in secured lending month-on-month.

These figures, though, had been exaggerated due to March’s high lending figures as many lenders rushed through existing CCA-regulated deals before MCD came into place. This resulted in a record £86m being lent, while the secured lending market has almost doubled in size over the past two years.

“With all the additional administration required, it’s no surprise that we’ve seen a short-term slowdown in second charge lending,” Harry added.

“However, this pause in growth has allowed the sector to build the foundations for future long-term expansion. 

“Thanks to the new regulation, brokers should feel more confident in recommending secured loans for their customers where appropriate.”

Harry reported that Enterprise had seen an uplift of around 20% to over 60% in the conversion rates of applications to completed deals since MCD was implemented.

“Brokers are more familiar with the circumstances where second charges are appropriate and client expectations are being better managed throughout the advised process. 

“Consequently, higher-quality applications are being made to lenders and clients are more ready to sign once the offer is made. 

“This proves that, however challenging the changeover from CCA, the industry has moved to a stronger platform for long-term operational efficiency.”

The second charge report replaces Enterprise Finance's secured lending index with the report now combining the master broker's expertise and data from the Finance and Leasing Association.

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