Poll
9 out of 10 predict seconds lenders to move into first charge market
Second charge lenders may be drawn to the first charge market by a desire to climb the “capital stack”, according to Michael Childress, CEO of Step One Finance.
Michael’s comments follow a poll held by Loan Talk, which revealed that 91% of respondents, which include brokers, lenders and finance professionals, expect seconds lenders to enter the first charge residential market.
“The first charge mortgage market is massively larger than the second charge market, which can explain the possible desire for second charge lenders to consider moving up the ‘capital stack’,” Michael explained.
Martin Stewart, director of London Money, concurred that the profitability of the first charge market was likely to be a factor behind any move towards the firsts market.
“[It’s] probably the thought of higher margins and a way to profitably deploy capital while minimising risk,” Martin suggested.
“The first charge market is evolving all the time and in many respects [is] totally unrecognisable from the pre-credit crunch days.”
Michael claimed that this trend towards the first charge market would drive competition among lenders.
He added: “I think crossover between the first and second charge mortgage market in either direction is a positive development for customers and will lead to greater product selection and more competitive pricing.”
Indeed, some lenders have already taken action to remain competitive.
Just last week, Together announced that it had increased its first charge mortgage amounts to £250,000.
Despite this, Michael insisted that seconds lenders would not feel pressured into entering the first charge market.
“For most lenders it will come down to the cost of available funding and if they can lend profitably.
“Brokers on the other hand may want to position themselves as offering ‘whole of market’ mortgage advice in which case the need to move into the first charge market could be more pressing.”
However, Martin warned that any lenders who enter the first charge market should not rule out using brokers.
“We see enquiries all the time which in the cold light of day are a nightmare to arrange,” Martin stated.
“I think lenders would be mad to deal direct with consumers for this reason alone and I think the consumer is equally mad if they tried to deal direct with the lender.”
Martin also recognised that firms offering more first charge mortgages could prove to be an opportunity for some second charge lenders.
“There are mortgage prisoners all over the place and it may well be that some of the second charge lenders can be nimble enough to meet the known need that is out there.
“Whether that be lending to older clients, or those with difficult to prove income or even obscure property types there is definitely an opportunity if the money can be priced competitively.”
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