Second charge mortgages – looking back and looking forward

The lending run rate in second charge mortgages is looking like hitting £1bn this year – a milestone we have reached before, but a sign that the market is recovering following the pandemic.

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Simon Mules | Commercial Director, Optimum Credit
19th November 2021
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Whether or not you view these numbers optimistically, we should not lose sight that there has not been the government support for the second charge market that the first charge market enjoyed during the pandemic.

At Optimum Credit, part of the Pepper Money Group, we have seen our share of the second charge market rise to more than 40% during 2021 and we also recently announced the successful completion of our largest securitisation to date, so you may be forgiven for thinking that we will be unhappy to see an end to this year, but actually 2022 cannot come quickly enough for us.

Following the acquisition by Pepper Money in 2018 both teams have been working tirelessly to integrate both businesses under one trading style, which will see the Optimum Credit name disappear and allow the second business to benefit from the strength of the Pepper brand and all the added value that joint marketing campaigns can bring. We are hoping to conclude this process early in 2022, so you might say that we enter the new year full of ‘Optimumism’!

Following the integration, you will see more of Caroline Mirakian in the press as she has recently been appointed as Sales Director for our second charge mortgage proposition. Caroline is keen to raise the profile of the second charge market and, of course, the benefits of working with Pepper, so will be providing regular market insights and commentary.

Looking forward

What will 2022 bring for the second charge market? Where do we start! Will things turn green in the seconds market, will rates rise, will the market grow, will service levels improve, will there be more competition?

When I look back at the loan applications we received during 2021, the market continues to be dominated by customers who are looking to consolidate their debts. This is a trend that tends to be exacerbated during periods of increasing interest rates, as customers often take a lot of unsecured borrowing over short terms, which can quickly become unaffordable if rates rise. So, in the right circumstances, a second charge mortgage over a longer term may be appropriate.

2021 also saw many of us spending more time at home and less time on holiday or in the office. This led to an increase in the number of applications for customers seeking to improve their own home, some seeking increased space to cope with home working whilst others sought to avoid the cost of moving by extending their own homes.

There is clearly a movement in both the first and second charge mortgage markets to recognise the government’s to improve the energy efficiency of the housing stock through new, innovative, green products and 2022 will see us launch propositions designed to support those who want not only want to improve their homes but as the same time reduce their impact upon the environment. Look out for more information on this in the new year.

One could probably argue that a number of first charge lenders have some established products, so there will need to ground to make up in the second charge market, which does not have as wide a customer awareness, as it needs and deserves.

Competition is one of the key drivers needed to grow the market. It will undoubtedly come, but hopefully it will bring innovation rather than plagiarism. Lenders in the second charge market are committed, well-funded and here for the long term.

Service can be an enigma for any lender. Our ethos and culture at both Optimum and Pepper is to be able to provide a high level of service to our customers and broker partners alike. We have received many compliments on our service and I’d like to break a myth which suggests our superior service is down to systems. It is not – people are the difference and I’m proud to be part of a team that strives to provide the service you need. We will endeavour to drive this further forward in 2022.

To sum up, 2022 may start on the same trajectory as it is now for the first quarter, but I see a growing demand for an under-utilised product and expect significant growth in the market during the second half of the year.

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