Second charge finance has bounced back from November’s 12% dip in lending, smashing through the £98.5m record set in October. Secured lending grew by £6.7m in January, up from £99m in December.
The rapid expansion in the market has enabled second charge mortgages to outpace the rate of growth in the mainstream remortgage market. Secured lending rose 59% year-on-year in January, comfortably surpassing the 32% growth in monthly remortgage lending over the same period. However, monthly secured lending is still significantly smaller than the £5.8bn of monthly remortgage lending. This shows that while an increasing number of brokers are turning to second charge finance, there’s plenty of room for future expansion.
January’s surge means that annual second charge lending has finally broken through the £1bn barrier, with £1.03bn lent over the last 12 months. The upswing in total annual lending represents a 31% increase since January 2015. Annual secured lending rose from £993m in December to establish this new benchmark. Despite the rise in the value of monthly lending, the average loan size fell in January. The typical second charge loan dipped to £54,894, down from £57,428 in December. This represents the smallest average loan size since January 2015.
Harry Landy, Sales Director of Enterprise Finance, said:
“January was a momentous month for the second charge market. Finally breaking through the £1bn barrier is evidence of the growing stature of the sector and the increased consumer interest. The huge upswing in lending in January was a positive sign in the run up to MCD implementation, giving lenders and borrowers alike increased confidence.
“Brokers are now using second charge lending as an alternative to remortgage products, with both markets expanding rapidly. The increased competition between the two types of finance will only benefit consumers, giving them additional choice when raising capital.
“There are many cases where second charge finance may better suited for clients when compared to remortgaging. These scenarios include – but aren’t limited to – consumers with interest-only mortgages, those with low standard variable rates on their first charges, or self-employed borrowers who are struggling to access the finance they need through other means. Intermediaries have increasingly opted for second charge products when serving these types of clients due to the reassurance available from specialist finance experts who are qualified to provide large volumes of specialist finance with quick case approvals."
Landy also commented on the impact that the new Mortgage Credit Directive regulation would have on the sector, noting that the new regulation will boost the profile of the sector, and provide the sector with the same 'reputational sheen that the mainstream mortgage market has always benefitted from. Brokers who are limited to offering products regulated by the FCA will now be able to recommend second charge finance to their customers, providing a further boost to monthly lending. The enhanced reputation which accompanies effective regulation will also raise awareness and appreciation of the secured loans sector.
He concluded:
“While there may be a slight slowdown at first, the European Mortgage Credit Directive will provide a large long-term lift to secured lending. As awareness of the new regulatory regime increases, the second charge market will benefit from improvements in perception and reputation. As a result, we expect more brokers to choose to offer secured loans to their clients, as these products may be more suitable than remortgages. By enabling intermediaries to better serve their customers interests, secured loan providers should gain a greater share of business from consumers seeking refinancing.
“The increased competition from lenders will enable consumers to obtain the best deals possible. Further, there will be more tailored solutions available to brokers that they can offer their customers. Hopefully, with a larger profile within the financial sector as a whole, the second charge market will be able to reach its full potential as a vital tool for raising finance and assist in meeting customer needs.”
