It’s safe to say that the first quarter of 2018 has not been the easiest for the second charge sector as a whole. The increased regulatory scrutiny has been well-publicised and some probing questions are being posed regarding operating standards and practices. Having said that – and taking into account any regulatory influencing factors – a ‘business as usual’ attitude has largely been maintained to meet the needs of a growing number of borrowers.
So what have we learnt from Q1 2018?
Well, we do know that lenders are still attracted to this sector. The turn of the new year saw West One Loans unveil a range of second charge buy-to-let loans to mark the next step in the broadening of its overall specialist offering. Towards the back end of January Vida Homeloans announced their expected entrance into the second charge marketplace. Well respected new entrants like West One and Vida will add real value to the sector and these announcements kicked off 2018 with a really positive message to the intermediary community
When assessing initial activity levels it was great to see FLA data show that the second charge mortgage market experienced growth in January. The total number of second charge new agreements reached 1,645, up 13% when compared to January 2017 figures. The value of new business also increased, up 8% on an annual basis. These figures signified a strong start to the year and reflected quiet optimism within the lending community and growing confidence amongst intermediaries and their clients.
In February we saw additional figures released by the FLA which revealed that the number of second charge mortgage repossessions totalled 105 in 2017, representing a year-on-year fall of 27%. According to the report, the final quarter of 2017 saw only 27 repossessions, a 31% drop compared to the same period in 2016. As a percentage of average outstanding agreements, the rate of second charge mortgage repossessions was suggested to have fallen from 0.34% in 2009 to just 0.06% in 2017. While this data obviously relates to 2017, it proved to be a welcomed shot in the arm for the sector, especially in light of the tightening regulatory grip.
The shortest month of the year also served to highlight a component which will undoubtedly continue to capture the attention of the sector over the course of 2018, and that is technology. This came in the form of Castle Trust launching a new instant quotation engine which will generate quotes in real time for all first and second charge loans up to £750,000.
Moving into March, we saw further FCA related headlines with a ‘Dear CEO’ letter surrounding lending concerns sent to all second charge providers. Greater levels of transparency over all types of lending decisions are vital moving forward, and any sensible, well- thought out regulatory action with the intention of raising professional standards should be welcomed. This is obviously an ongoing issue certainly not limited to Q1 2018.
Looking forward, the 1 May deadline for lenders to review all processes, systems and controls, then confirm to the regulator that they are lending responsibly is clearly high on the agenda. Not that this should be feared. The vast majority of lenders already have robust procedures in place and this increased regulatory microscope is a necessary step in the evolution of the second charge sector. And there is no reason why this should act to dent confidence or optimism as we enter Q2.
Paul Crewe is managing director at Smart Money