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It’s been a very positive year for the second charge market with new business levels almost back to pre-Covid numbers.

Data from the Finance and Leasing Association (FLA) revealed that completions in October reached £109m which is the highest total for 2021 and the third consecutive month of growth. Agreements have increased annually by 26 per cent to 24,626 and the value of new business rose by 24 per cent to over £1bn.

To put it into context there were 28,016 second charge completions totalling almost £1.3bn in 2019 pre-pandemic. So, we could end 2021 on a similar level to 2019.

This new found momentum is expected to continue into 2022 and it is anticipated that we could see the highest second charge lending figures in the post financial crisis era.

Factors driving second charge growth

There are several contributory facts to the growth in second charge and 2022 will be heavily influenced by the high number of mortgage products expiring. These are worth billions of pounds with almost £40bn due to expire in January.

No doubt this will fuel record product transfer levels which will support further growth in the second charge market. Second charge can serve borrowers with additional borrowing needs who are likely to have proceeded with a product transfer on a like-for-like basis, particularly where this has been completed as an execution-only transaction.

On 16 December the Bank of England increased the base rate for the first time in three years from 0.1 per cent to 0.25 per cent in response to inflationary pressures. But even prior to this we had started to see an increase in mortgage rates in the first charge space as swap rates continue to rise.

Longer-term fixed rates, especially five-year fixes, are becoming increasingly popular for borrowers looking for payment stability against a backdrop of rising interest rates, which often carry substantial early repayment charges. A second mortgage offers flexibility where borrowers need to capital raise during the fixed-rate term.

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Change in circumstances

Many borrowers’ credit profiles may have been adversely affected by the pandemic. This means there will be a significant number of borrowers who could benefit by staying with their existing mortgage provider to ensure they can continue to access high street mortgage rates.

If they are benefiting from a low first charge mortgage rate, remortgaging away from their existing deal to raise capital may not be the best option for borrowers in this situation.

This is where a second charge would allow borrowers to raise further funds without disturbing their existing mortgage arrangements.

Housing stock shortages

The stamp duty holiday was introduced to keep the housing market active and it succeeded in its aim, some would say it over-succeeded.

Demand for house buying has resulted in prices rising annually by ten per cent in November, according to Nationwide. Since March 2020 when the first lockdown began house prices have increased by 15 per cent, which equates to a rise of more than £33,000.

The uplift in house prices coupled with a shortage of homes for sale has led to more homeowners opting to improve or extend their existing property. We have been seeing more of this particularly on larger and more expensive properties.

I expect this will continue in 2022 and second charges can provide flexibility both in terms of speed and loan size supporting home improvements in higher value property projects.

Reasons to be cheerful

Whilst the spectre of the new omicron variant may give cause for concern for a further lockdown, there are many reasons to be optimistic about the outlook for 2022 for the mortgage industry as a whole.

Borrowers will undoubtedly rely on professional mortgage advice more than ever. Lenders offer a wide range of financial solutions and this will ensure that as an industry we can strive to deliver the best possible outcomes for consumers with additional borrowing needs.

By Marie Grundy

Source: Mortgage Solutions

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