Specialist Lending - May 2017  

How will the second charge market develop?

This article is part of
Guide to second charge lending

“What’s not to like about that? Disenfranchised intermediaries could be pleasantly surprised, and a move such as this could potentially deliver better customer outcomes, and grow the market.”

Shake it up

It’s hardly radical but it could be the shake-up the market needs. Perhaps it is a case of allowing the recent changes under the Mortgage Credit Directive (MCD) to sink in.

Maybe second charge lenders need time to absorb the regulatory changes and position themselves to capitalise.

As Andrew Fisher points out: “The industry has just gone through its biggest regulatory changes with the European Mortgage Credit Directive, so I don’t expect there to be any significant changes any time soon.”

He insists: “The second charge market is evolving and there are many new products coming to the marketplace as banks and lenders seek to differentiate themselves from their competitors.”

Harry Landy, managing director at Enterprise Group, believes there is more the regulator can and may do.

"The MCD was a huge regulatory change. We don’t expect to see anything of that scale in the near future. The FCA has, however, said it is looking at unused permissions among advisers with a view to removing them if not used," he points out.

"That’s likely to extend to reviewing the rush of second charge permissions (over 2,000) taken out at the time of MCD by the [approximately] 5,000 directly authorised brokers. So there may be some scrutiny from the FCA on why those permissions haven’t been used when brokers are obliged at least to consider second charges."

Aligning the regulation of first and second charge mortgages may not exactly hail a new era for this type of lending but as long as the industry is responsive, it could be the start of the steady growth of second charges.

Some companies may have been dragging their feet but others have been far quicker to respond.

Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association (FLA), says: “Now first and second charge mortgages are regulated on the same basis, firms are unsurprisingly beginning to explore new product options. 

“Some firms have already extended their product range to include first charge mortgages and buy-to-let loans and there is also the potential to look at more bespoke services which customers would find useful, such as lending into retirement.”