Oct 12 2016

A fresh approach to specialist lending 

Supported by
Enterprise Finance
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Supported by
Enterprise Finance

Q: How has the second charge mortgage market developed over recent years?

A: We are in a significantly different marketplace compared with a decade ago. Back then, secured lending was much more around adverse credit. You had much higher LTVs – up to 120-130% – and greater availability of sub-prime products. There were what we called “any, any” products, where the applicant could have unlimited CCJs and mortgage arrears, and still get accepted. We’re a world away from that now. The vast majority of borrowers we deal with today are essentially prime.

In 2007 second charge lending accounted for £7bn in a mortgage market worth £360bn. However, once the credit crunch took hold a lot of lenders had their funding pulled and the number of products available reduced substantially, and especially for bad credit.

By 2010, the second charge mortgage market bottomed-out around £350m, but it has grown steadily from there. Over the past 5 or 6 years we have seen new lenders emerge, with new products, ideas and criteria. But what has been really pleasing to see is that we have not gone back to those high LTV, high adverse products. The re-adjustment in 2009-10 has substantially improved the credit profiles of customers we are dealing with.

Q: What would your message be to those advisers who have perhaps tended to avoid second-charge mortgages?

A: It is completely understandable that they may have had misgivings, based on what happened in the past. The second charge mortgage market probably still has a perception attached to it that it is for low income, poor credit customers, and having high fees charged. However, it is crucial to understand that the market has changed for the better since then. This has been helped in no small part by the changes to the Mortgage Credit Directive in March of this year, which means that second-charge mortgages are regulated in the same way as first-charges are. That added to our reputation in a way that we would not have imagined 10 years ago. It’s stepping into the mainstream.

According to the Enterprise Finance Second Charge Report – what was the Secured Loan Index until recently – looking at the types of people using second charges, we are seeing average loan sizes of £56,000 behind an average first-charge of around £265,000. With an average LTV of 56-61%, this tells us that these are prime customers who, for a multitude of reasons, decide a second-charge mortgage is more appropriate for them than remortgage or further advance options. That is really encouraging as it shows that we are now dealing with good quality borrowers, which should be reassuring for advisers. Moreover, it confirms that second charge mortgages are a useful alternative for advisers to consider when evaluating options for their prime clients.

Q: How does bridging finance fit into this new environment? 

A: Bridging has enjoyed spectacular success, reaching over £4bn of lending in recent months, up from just £2bn a couple of years ago. Bridging lenders successfully stepped in to fill the void formed when high street banks retreated from the market after 2008. There are now a variety of lenders with a choice of offerings that can be very useful, especially where time is of the essence for the client. Bridging is fast and flexible financing, which can really help in the right circumstances. 

Bridging loans can be used shrewdly by professional developers, buy-to-let investors and those who can refurbish and sell on a property quickly. This can include buying a property swiftly to get it off the open market, or buying at auction where there is typically just 28 days for completion. Those people then have the option to repay the loan by way of refinancing or selling the property. Bridging finance allows them to do that and, while interest rates are higher, these professionals simply factor that cost into the overall deal. These loans can also be used by individuals who encounter completion delays or a broken property chain when they’re buying a house.

For advisers, bridging offers access to customers who can prove very lucrative. A professional property developer might do 2 or 3 deals a year, where they first purchase those properties then sell or refinance, depending on their exit strategy. That gives potential for 3-6 transactions an adviser could do for that customer in a year. Brokers also build up a much stronger bond with that sort of client than with someone they might only see every couple of years at their review. 

Q: What role does Enterprise Finance play?

A: The first thing to highlight is that Enterprise has always put customers at the heart of what we do, and treating customers fairly is our mind-set. We have been FCA regulated since 2004, well before we were required to be. We were already regulated by the Consumer Credit Act and the Office of Fair Trading, but we welcomed the extra layer of FCA regulation. As we are 100% dedicated to intermediaries and our introducing brokers are all FCA regulated, we wanted to embrace the same standards. We now have a very strong, in-house compliance team of 5, who deal with everything in our company, from procedures to audit to file checking. All that makes sure we’re a safe, professional, customer-orientated partner that brokers can rely on to work in their clients’ best interests. That’s critical when brokers have to work with a Master Broker like us, to access many of the specialist lenders we deal with. And we help brokers limit reputation risk when working in this specialist sector, as we are experts with a proven track record.

Further, we pride ourselves on the support we offer to intermediaries, with business development managers across the country, on hand to guide brokers in the way in which products can be used, and how to find new clients and service their needs, coupled with online resources. We believe second charges, bridging finance and indeed complex buy-to-let lending have evolved hugely and are working to educate advisers on those changes. We’re showing how these products and the clients who use them can be a central part of their proposition. We want to make it easier than any other partner for brokers to access specialist mortgages, so that more options are available to them to solve their client’s problems. We want brokers to have somewhere to go when the high street’s said no.

Enterprise Finance Ltd is authorised and regulated by the Financial Conduct Authority. Firm Reference Number: 302964. Registered in England and Wales. Company Number: 04440152. Certain types of loans are not regulated, for example loans for business purposes or certain buy-to-lets.