Specialist Lending - May 2017  

The growth of the second-charge market

This article is part of
Guide to second charge lending

As Steve Harness, commercial director at The Loans Engine notes: “We are now 12 months on from ‘MCD Day’ which was to be the watershed moment for second-charge mortgages. 

“Their inclusion within MCOB, and the requirement for mortgage advisers to make capital-raising customers aware that alternative finance options such as a further advance, second-charge or unsecured loans are available and may be more appropriate should, at the very least, have raised awareness.”

“Yet the market is at best flatlining, with 1,600 or so loans per month. Why should this be?” he asks.

It is a good question, and one which he and others in the industry are asking.

FTAdviser has previously reported concerns that brokers are not meeting the requirements of the MCD in relation to second charge mortgages, with advisers and brokers lacking awareness of the product - a trend Enterprise has noticed too.

"What’s also apparent is that, in spite of regulatory requirements at least to consider second charge options when capital raising for clients, many mortgage brokers are not necessarily doing so fully," Mr Landy says. 

"Changing that is critical for unlocking growth, which is why it’s important for the market to educate brokers on the situations where second charge mortgages can help."

Positive moves

Mr Harness points to the “abundance” of product availability, with 17 active second-charge mortgage lenders, and rates now starting at 3.83 per cent.

Many in the industry acknowledge interest in the market has not been as strong as they hoped.

“The second charge lending market has not taken off in the way some commentators expected as it moved to FCA regulation and could be aligned more clearly with first charge lending processes,” admits Mark Dyason, managing director at Thistle Finance. “Indeed in February 2017, volume versus February 2016 was down 12 per cent.”

In many ways, the shift to FCA regulation has been positive for the market though.

Where before there were discrepancies in the second charge market, the industry is coming in line with the mortgage market in terms of fees charged and regulatory scrutiny, which should be better for end clients.

Peter Williams, sales director at mortgage adviser John Charcol, agrees: “Regulation has helped with conversion as customers feel more protected and comfortable with the whole second charge market. 

“The previous perception of second charges being for people in trouble or [having] high rates is slowly being shaken off.”

He notes: “Lenders and competition have helped as new entrants have entered the market and given fresh ideas and criteria to this space.”

The increased competition has most notably resulted in rates coming down but Mr Williams also observes the state of the first mortgage market has also had an impact.