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

Second charges hit £47m for January

Second charges hit £47m for January

Second charge lending has started with a bang in 2014 as £47 million of loans were completed in January.

Lending figures increased by £6.5 million, representing a 16 per cent increase on December 2013, and £14.6 million, a 43.95 per cent surge, on the previous year.

According to the latest Secured Loan Index, the total lent in January 2014 was recorded at £47,365,960 million.

January also marks the 27th month of successive year on year growth for the second charge market.

Lending up, repossessions down – Is it all good news?

Nick Parkhouse, Senior Director at RBS Financial Institutions Structured Finance, was asked to be guest editor of the Index and gave the following opinions on the hot topics effecting the secured loans industry…

Another month and, weather aside, the positive news keeps coming. The secured loans industry has seen its 27th consecutive month of year-on-year growth, the FLA announced a further fall in repossessions by secured lenders during Q4 (13) and a number of secured loan lenders announced during January they were launching into Northern Ireland.

Northern Ireland brokers finally have a reason to smile. Having spent almost four years with little or no options available to them, there is now competition with Clearly Loans and Central Trust launching products available in Northern Ireland.

Clearly Loans was first to launch, with rates from 13.9 per cent, loans to £50,000 and a maximum LTV of 75 per cent. This was swiftly followed by Central Trust who are offering loans of £30,000 and LTV up to 60 per cent, the difference in criteria meaning both products are in demand.

Secured loans confidence

All in all it would appear that there are a number of positive factors that are underpinning the secured loan market in greater consumer confidence, start of an economic recovery and increased competition leading to more choice and lower pricing for consumers. This has played out in the numbers during 2013 which finished the year at £493 million and has continued its strong performance with £47 million in January. This should be positive for the 2014 numbers and give support to continued growth in the secured loans market.

However what should we be looking out for?

At some point interest rates will rise and there is a question around the potential impact on loans. From what I have seen so far, stressed I&E’s, sensible loan to value levels and good underwriting discipline should help to part mitigate. A more interesting question is how many lenders will pass any rate rise on and do they have a strategy as to how they will deal with this? Secured loans have long been variable rate – could we start to see an increase in fixed rate product?

The environment for writing secured loans over the last few years has been good and much of it down to lenders setting and following sensible underwriting criteria. While some loosening of criteria is to be expected as the economy recovers, as competition increases continued discipline will be important to ensure that loss levels remain within acceptable levels and that the lessons of the financial crisis are not forgotten.

To prove that point, last month saw several changes; Masthaven reduced its rates across the range including a new ‘market-leading’ rate for BTL secured loans of 9.85 per cent, whilst Shawbrook Bank announced the biggest overhaul of its product range since launching, reducing rates across its larger loan plans, widening LTV banding and reducing minimum credit scores across the range.

Automated valuation models have, and will continue to have, a part to play in the growth of the sector. We have spent some time looking at AVM’s and coming up with our own thoughts as to where we are comfortable. It should be no surprise that extreme low value and extreme high value properties exhibit lower liquidity and therefore less confidence in their values. As competition increases the attractiveness of AVM’s outside of a lender’s usual guidelines may increase however like with anything moderation and discipline is key.

Final Thought

Lending up, repossessions down, buy-to-let rates at post-credit crunch lows and secured lending returns to Northern Ireland…not a bad month.

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