MCD caused 41% secured lending drop

The implementation of MCD caused a 41% monthly fall in secured lending in April, according to the new Enterprise Finance Second Charge Report.

Related topics:  Specialist Lending
Rozi Jones
12th July 2016
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"With the new systems, expert staff and regulatory backing, the second charge market can now compete effectively against the mainstream remortgaging market."

It attributed the decline in monthly lending to lenders and brokers spending a "significant amount of time and capital" embedding new systems and training staff on how to deal with MCD regulations. It added that for some second charge providers, the technology may have had teething problems, while others used the month to reorganise before resuming normal lending.

However the report shows that the decline is somewhat exaggerated by high March figures, when many lenders rushed through existing CCA-regulated deals before the new rules came into place. This decision to maximise business before the new legislation led to record £86m lending in March.

However gross annual second charge lending has surged. For the 12 months to April 2016, total lending stands at £886m, up 29% on the previous year.

Enterprise adds that it has seen a major rise in conversion rates of applications to completed deals - an uplift of around 20% to over 60%, which it says is "as a direct result of the new regulations" as brokers are more familiar with the circumstances where second charges are appropriate.

The report also shows that while the number of monthly transactions has fallen since January, the size of the average second charge loan has risen by 14% over the last four months. With typical loans sizes remaining over £60,000 Enterprise says "this upswing suggests that secured lending is becoming a realistic alternative to remortgaging".

Harry Landy, Sales Director of Enterprise Finance, said: “With all the additional administration required, it’s no surprise that we’ve seen a short-term slowdown in second charge lending. 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. With the new systems, expert staff and regulatory backing, the second charge market can now compete effectively against the mainstream remortgaging market.

“So, although there has been a drop in April, our view is that this is a short-term blip because of this operational interruption. Lending volumes for May picked up for us as pipelines rebuilt, and June was better again, suggesting a progressive recovery as processes normalise. When looking at total gross annual lending, the sector has almost doubled in size over the past two years. When moving at such a rapid pace, it’s important that lenders have the steady footing that the new MCD regulation provides.”

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