The relationship between second charge loans and brokers can sometimes feel like a long and trying courtship, with the FCA acting as a chaperone to make sure nothing untoward happens along the way. So why doesn’t it always end up happily ever after?
For many intermediaries, second charge loans still come with a bit of baggage in terms of their history and reputation. The FCA and lending industry have worked hard to clean-up poor practices in the second charge market, but it still might be that many brokers remain wary. But it doesn’t haven’t to be this way. Seconds have evolved to become a viable option for large groups of borrowers and are more affordable and flexible than ever before.
Seconds are particularly helpful for those who are struggling to access funds, such as self-employed clients or those with complex financial backgrounds. For example, Masthaven’s first ever second charge loan helped a self-employed couple who had been turned away by high street lenders. In the first year of their business they opted not to take a dividend or salary, reinvesting cash in their enterprise instead. This saw them fall outside the remit of mainstream banks. However, our broker partners understood the client’s needs and knew that we could help, as they clearly had a strong business.
Second charge has also emerged as an increasingly useful way for buy-to-let landlords to release funds. This could be for making improvements to a rental property or releasing equity to grow their portfolio. It could even be the case that a landlord utilises this facility to make improvements to their own home – as long as they can cover the cost from rental income received.
So, how can we encourage more brokers to look at seconds for their customers?
First, we – as lenders – never take brokers for granted and constantly need to work hard to attract, and maintain, their attention. Competition is obviously paramount, but flexibility and education are also key. With more communication between lenders and brokers, not only can we ensure better client outcomes, but help brokers turn this lending option into a safe and regularly used product. Furthermore, the FCA requiresfirms offering both first and second charge mortgages to make customers aware of other forms of borrowing that may suit their needs – for example, a second charge. However, because of the persistent uncertainty in this area, brokers often turn to more familiar options, such as remortgaging. With current rates so competitively priced though, these loans can often be a viable alternative to a standard remortgage deal.
The potential attached to second charge has been the talk of the industry for quite some time and the figures highlight how far we have come. Recent data from the Finance & Leasing Association showed that both the value and volume of new second charge mortgage business grew by 11%in September 2018, with 1,958 cases completed worth £89 million. This was reported to be the strongest rate of growth in new business volumes since January. New business volumes were also reported to have grown by 4% so far this year.
This uplift comes on the back of relatively static lending figures which reflected a marketplace steering its way through regulatory change. However, this transitional period has also resulted in higher professional standards across the board to make it an even more secure and attractive sector for brokers and their clients. Specialist banks and providers have also shaken up this space by offering additional speed – often releasing funds within two to three weeks – efficiency, and modern-world criteria to challenge existing lenders.
Now is the time for brokers, underwriters and lenders to look at the benefits of seconds and ensure they are delivering these responsibly and to the high standards that customers deserve. As the housing market stagnates and the number of self-employed and business owners continues to grow, lenders must ensure they are offering the best products available to their customers based on their particular financial and personal needs – and seconds will play a key part in this.
Rob Barnard is sales director at Masthaven