I have been asked on many occasions to justify the relevance of the second charge market and I point out that a second charge loan is simpler to arrange, has very simple terms and conditions, no upfront fees, does not negatively impact on existing advantageous longer term funding arrangements and whose rates are at a historic low. These are crushingly good reasons for even the most cynical to look again at the sector, but still we are struggling to make the case against a mindset which still believes that remortgaging is the only way to capital raise.
Only last week, I was talking to a very respected industry figure with responsibility for his firm’s stance of all things lending related. When the subject of second charge lending came up, he told me that their brokers were told not to engage, so it is hardly surprising there is still a job to do in breaking through the perception barrier.
To that end, I am delighted that regulation of the sector moves to the FCA in April and the incoming MMR will bring more focus to the trail of evidence which leads brokers to recommend a particular solution to a client. As far as we can see, the broker is going to have to demonstrate not only why he has chosen a particular path but also which other avenues he has researched and why they were not appropriate. Given the many reasons why a remortgage might not be the best advice for a client, I am confident that second charges will have to be treated as a serious alternative by even the most ostrich like adviser.
With second charge lending now well established in Scotland, it is good to see that several lenders have announced their launch into the Northern Ireland market as well. The whole of the UK is now being covered, there is not even a geographical argument not to make use of second charge facilities.
New growth will come from the need to comply with the FCA’s new rules, which will bring more brokers into the second charge orbit, but also from the improving criteria and rates which competition is bringing to the table. With half a dozen new lenders coming into the sector last year and the prospect of at least three or four who have made definite commitments this year, increasing numbers of potential customers for loans who had previously been outside the lending tent, will now be able to benefit.
Other areas of growth will come in the buy-to-let field and I would recommend brokers look carefully at this area because many landlords will be looking to improve existing portfolios and refurbish property. Remortgaging might look like an answer, but unless there are compelling reasons like coming to the end of a fixed rate, then making good with a loan facility based on a second charge is going to be a much more elegant and sensible route for a landlord to take.
On the product front, Shawbrook are the latest to spring clean their product range and I see that Paragon has just been granted a banking licence by the PRA, which in itself is an achievement of note. However, I see that an intermediary led personal loan offering is on their agenda. So the number of lenders wishing to be part of the sector continues to grow. I think every broker needs to ask whether they can continue to ignore a sector offering so much choice in such a consumer friendly package.
Bradley Moore is head of second charge loans at Brightstar Financial