Enterprise Finance has launched its new Second Charge Report, replacing its Secured Loan Index.
This report draws on data from the Finance and Leasing Association (FLA) and will look back at what has happened over the past few months, before looking forward to see what could happen after the EU referendum decision.
This first edition of the report examines the second charge market between February and April. Growth in second charge finance has slowed in April, with FLA figures recording a 19% drop in monthly lending compared to April 2015. Enterprise says this suggests the rapid expansion of the secured loan sector seen during the winter months cooled in spring.
The specialist master broker says this apparent decline in monthly lending has been mainly caused by disruption following the implementation of the EU’s Mortgage Credit Directive (MCD) in March. As many lenders and brokers chose to spend a significant amount of time and capital, embedding new systems and training staff on how to deal with MCD regulations, the sector’s productivity stalled. The new regime required lenders to create new IT systems to process loans. Lenders also had to ensure all relevant staff are attaining CeMAP qualifications to meet required competency standards. For some second charge providers, the technology may have had teething problems, while others used the month to reorganise before resuming normal lending, Enterprise said.
With the additional regulation, there has been a 41% fall in secured lending month-on-month. 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. Lenders then paused to take stock and rebuild pipelines in April. While monthly lending has declined, 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.
Harry Landy, sales director of Enterprise Finance, said: “The implementation of the new MCD legislation has required second charge lenders to change their systems, launch new portals and ensure staff are fully trained. 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.
“This has translated into a major rise in conversion rates of applications to completed deals. At Enterprise, we’re seeing an uplift of around 20% to over 60%, as a direct result of the new regulations. Brokers are more familiar with the circumstances where second charges are appropriate and client expectations are being better managed throughout the advised process. Consequently, higher quality applications are being made to lenders and clients are more ready to sign once the offer is made. This proves that, however challenging the changeover from CCA, the industry has moved to a stronger platform for long-term operational efficiency.
“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.”
