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Second charge mortgage market set for a bumper 2022

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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Second charge for debt consolidation rises

Second-charge products, by both volume and value, are more likely to be required by debt consolidation borrowers, rather than prime borrowers, according to the Evolution Money quarterly data tracker.

Looking at its total lending data for the last three months, up until the end of November 2021, the product split by volume of mortgages is 77% debt consolidation/23% prime, and by value 67% debt consolidation/33% prime.

During the previous two quarters covered by the tracker, lending by volume to prime borrowers had been around 10% higher than this quarter, and there was a more even split between debt consolidation and prime.

For those borrowers specifically using a second-charge mortgage for debt consolidation purposes, the average loan amount has increased just slightly to £21,448, with an average term of 123 months, and average loan-to-value (LTV) also increasing to 73.9%.

Borrowers, on average, continued to consolidate five specific debts, however the average value of the debts consolidated increased to £15,358.

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For prime borrowers, the average loan amount has also increased up to £35,215, with an average term of 153 months, and an average LTV also increasing to 72% from 69%.

Prime borrowers are typically taking out these second-charge mortgages again for debt consolidation (55%), home improvement and some consolidation (23%) and home improvement (18%).

Borrowers were also utilising second-charge loans to pay for vehicles and to fund existing business ventures. The average number of specific debts being consolidated by prime borrowers has remained at five, and the average value of the debt has increased again to £23,160.

Steve Brilus, chief executive of Evolution Money, said: “Second-charge products have always been used by homeowners for debt consolidation purposes, however in previous iterations of the tracker we were starting to see a growing number of prime borrowers using seconds for purposes which were not purely to pay off debts.

“This time around however, it’s clear there has been a shift back in favour of debt consolidation and this is likely to be fuelled by the data coming from a period when government support was being removed, particularly with regards to furlough, and the fact that many people who had accumulated debts during the pandemic were looking for solutions to pay those more expensive debts off.

“This may be why we’ve seen an increase in both loan amount and the average value of debts consolidated by both debt consolidation and prime borrowers, and why LTVs have moved upwards.

“We should not underestimate the benefits that debt consolidation can provide and with second-charge rates likely to be much lower than many other forms of debt, it makes perfect sense for some homeowners to take out a second-charge and pay off their more expensive debts first.

“It’s likely that as we move into 2022 debt consolidation will continue to remain the number one reason for taking out a second-charge mortgage, however we should not rule out more prime borrowers requiring these products especially if they were able to secure an ultra-competitive first-charge rate over the last 12 months, but still find themselves with a requirement to access further equity.

“2021 was a very strong year for the seconds market, and we certainly believe 2022 will be the same. This is a growing sector of the market which advisers should be active in to help those clients with these specific requirements.”

By Jake Carter

Source: Mortgage Introducer

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Second charge market ‘returns to more normal levels’: FLA

The value of new second charge business came to £109m across 2,543 new agreements in October, which following September’s positive figures, has been cheered as a “return to more normal monthly levels.”

So says the Finance and Leasing Association (FLA) director of consumer finance Fiona Hoyle regarding the association’s latest figures, which describe the value of new business in October growing 55% on the year.

In the 12 months to October, the value of new business came to to £1.04bn, the report adds – a 24% annual increase.

And the total of new agreements in the 12 months to October now stands at 24,626 – an annual rise of 26%.

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Hoyle continues: “We expect new business volumes to continue to grow despite heightened economic uncertainty over the coming months.”

Paul McGerrigan agrees. He says: “Comparing the FLA figures out today with our own October and November performance, we calculate that the UK’s annual secured lending will comfortably exceed 2018’s total of almost £1.07bn – though this year’s final numbers may come in slightly behind the peak (post 2008 crash) of £1.3bn achieved in 2019.”

He adds: “Looking to the future – second charge lending typically reduces over December as families concentrate on Christmas, with a reawakening in January.

“Judging by this year’s growth in lending and house prices, we believe that – if the economy remains stable and unemployment under control – next year will experience growth beyond 2019’s figures.”

By Gary Adams

Source: Mortgage Strategy

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Why the seconds market is thriving

When the pandemic took hold last year, a host of second-charge lenders pulled back on their lending. As a result, the market struggled. However, there’s no denying that the second-charge market is now booming.

In fact, the latest figures from the Finance & Leasing Association show that in September this year new business agreements jumped by 67% to nearly 2,500, while the value of new lending increased 78% to £102m.

These aren’t one-offs either. In the three months to the end of September, both the number of new second-charge agreements and the value of those deals are up by more than 100% on the same point last year, while on an annual basis they are both up by more than 10%.

There is a pretty clear message there. Not only has the second-charge market bounced back from the challenges of COVID, it’s now at pre-pandemic levels. What’s more, the momentum isn’t ending – the FLA said it fully expects new business volumes to grow over the remainder of the year as demand is so solid.

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Changing circumstances

There are plenty of different reasons for why the second-charge sector is looking so positive at the moment, but the strength of that demand from borrowers is a significant one.

The last couple of years has had a real impact on the finances of millions of homeowners, and making use of the biggest asset they own – their home – in order to correct that makes sense.

It’s no secret that scores of clients have taken on additional forms of debt to get through the pandemic, but now that the economy – and perhaps their personal circumstances – look to be on an upward trajectory, they may want to explore their options for consolidating those debts into a single monthly payment.

Equally, there will be plenty of homeowners who have realised their current home doesn’t quite meet their needs, but they don’t have the appetite – or the funds – to purchase a new one, and so instead want to improve what they already have.

It may be converting an attic to build a new bedroom for a growing family, or perhaps adding an extension which can serve as a home office now that they spend a portion of the week working from home. That sort of home improvement project will likely require some serious funding too.

The number of clients in these positions has only increased as a result of the pandemic, and a second-charge mortgage is likely the perfect option for them.

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Remortgage regret

There was a time when intermediaries may have immediately turned to a remortgage for a client looking to raise funds for home improvement or to pay off debts.

There are some potentially significant downsides to following this course of action though. For starters, there’s the danger of large exit fees.

Let’s face it, with interest rates as they have been for the last decade, it’s no great surprise that huge numbers of borrowers have chosen to lock in for longer periods. For many borrowers, the 2-year fix is yesterday’s news – instead borrowers are more likely to want a 5-year fixed rate.

But that means that if they do need to raise funds, remortgaging can be prohibitively expensive due to the large early repayment charges they would face.

Of course, remortgaging may also mean the client has to move to a less attractive rate, particularly if the sum they are borrowing for their debt repayment or home refurbishment pushes the loan into a higher loan-to-value band.

Remortgaging may mean sacrificing a great rate, moving into a more costly band for borrowing and having to pay a hefty exit fee to boot. It’s not exactly a compelling proposition, is it?

A second option

However, a second-charge mortgage avoids all of those downsides. The client borrows against the equity they hold in the property outside of the existing mortgage – that first-charge is completely untouched.

This is an even more attractive idea after the last year, when the activity levels in the housing market have meant the value of our homes has increased, meaning homeowners often hold more significant equity levels than was the case just a year or so ago.

There are no exit fees to worry about, no payment shocks that will come from having to shift the existing mortgage to a higher rate or a higher loan-to-value (LTV) band. Instead, the client can simply access the funds they need for their project or debt repayment and get on with their lives.

With every week that passes, we see more and more advisers becoming more comfortable with the role that second-charges can play for their clients.

This has been coupled with fantastic competition and innovation across the lending space, meaning the products we deliver are better designed and suited for clients.

The FLA is absolutely right that demand for second-charge products are only likely to grow from here. As a result, it’s crucial for advisers to put plans in place for helping these clients, whether that be handling the advice themselves or partnering with specialists who can ensure those clients still receive the best possible guidance.

By Steve Brilus

Source: Mortgage Introducer

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Second charge mortgage new business volumes up 293% in May

Second charge new business volumes rose by 293% in May 2021, according to the Finance & Leasing Association (FLA).

The number of new agreements in May was 1,910, and the value of new business was £84m.

In the three months to May 2021, the number of new agreements rose by 82% to 5,848, and the value of new business increased by 74% to £253m.

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However, year-on-on-year, the number of new agreements fell by 27% to 18,044, and the value of new business dropped by 33% to £784m.

Fiona Hoyle, director of consumer and mortgage finance and inclusion at the FLA, said: “The second charge mortgage market reported a second consecutive month of growth in May, and new business volumes increased by 12% in the first five months of 2021.

“The improvement in consumer confidence means the market expects to see the recovery in new business continue during the second half of 2021.”

By Jake Carter

Source: Mortgage Introducer

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Brokers have been increasingly searching the second charge market

Mortgage brokers have been increasingly searching the second charge market for loans to help customers raise capital in March, Knowledge Bank said.

Three of the top five most-searched second charge criteria terms featured “capital raising” during the month.

The most searched for term in the sector was “maximum loan to value (LTV)”.

However, capital was sought for purchasing buy-to-let (BTL) property, followed by home improvements, then debt consolidation.

In the residential segment, “furloughed workers,” topped the searches for the third month in a row, followed by “maximum age at end of term”.

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“First-time landlord,” ranked first in BTL, then “lending to limited companies.”

Matthew Corker, operations director at Knowledge Bank (pictured), said the pattern of searches “demonstrate the economic divide in the UK at the moment.”

“Some have increased savings through lockdown and are using a larger deposit either to invest in property or add to their existing home. Others have been hit hard, losing their job or being put on furlough,” he said.

“Lenders continue to adapt criteria to keep up with the evolving market,” Corker added.

Source: Mortgage Solutions

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Second Charge lending up 31% in March

Second charge lending totalled £91.4 million in March 2021, a 31.27% increase on the previous month.

The number of completions also topped 2,000 for the first time since the pandemic began, with 2,202 second charge loans funded in March 2021.

The increase in the number of high LTV mortgage products returning to the market in recent months seems to have started to impact the second charge market, with a decrease of 4.18% being recorded for loans over 85% LTV.

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The increase is also significant when you compare year-on-year, with March 2021 just 1.72% below the figures posted in March 2020 – just a 1.5 million difference.

The average completion time shows the industry is well-positioned for growth: despite the monthly second charge lending increasing by 21.8 million, there was just a single day increase in completion time.

Source: Mortgage Finance Gazette

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Post-pandemic changes will lead to growing need for second-charge mortgages

In a year in which positivity has been at a premium, it’s difficult not to feel a little optimistic at the moment.

It has been an incredibly testing 12 months for everyone, but there does appear to be some light at the end of the tunnel with just a few short months until – hopefully – social distancing is a thing of the past.

The impact of the pandemic on our finances will continue to be felt for some time, however.

The fact businesses will take some time to get back onto their feet led to Chancellor Rishi Sunak, announcing at the Budget that the furlough scheme is to be extended until September.

For some businesses, that support is still not enough though, with the Office of Budget Responsibility forecasting unemployment to reach 2.2 million this year.

There’s no escaping the fact that an awful lot of people are going to be feeling the financial pressure and having to make their money stretch further in the months ahead.

Balancing the budgets

Some borrowers may focus their efforts on trimming the usual monthly spending, moving to a cheaper supermarket for example or ditching those subscriptions that they don’t really make use of.

But others will look at their debt repayments, from personal loans to mortgages, and look to their trusted mortgage advisers for help.

Second-charge mortgages will undoubtedly be the solution for some of these clients. One of the most common uses for second-charge mortgages over the years has been debt consolidation.

Keeping track of a handful of different loans, interest rates and repayment dates can be stressful enough when times are good, never mind in a post-pandemic environment.

Bringing them together in one place makes sense, but a traditional remortgage may not be an option due to the risk of incurring early repayment charges or having to move up an LTV band and therefore ending up with a more costly interest rate.

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That’s where second-charges become so useful, as the borrower can tap into the equity they hold in the property, consolidate those various commitments into a single loan at a competitive rate, and leave that existing mortgage deal untouched.

As an industry, we are already seeing a sharp jump in interest in second-charge mortgages. Indeed, recent analysis suggested second-charge lending in February totalled £69.6m, up by 14.4% on the month before.

That corresponds with our own activity and is a clear sign that 2021 could be a bumper year for seconds. And that presents a big opportunity for mortgage advisers.

No longer an afterthought

Second-charge mortgages aren’t the afterthought for mainstream advisers that they once were. Part of that inevitably comes down to the influence of the regulator, ensuring an integral part of the advice process includes evaluating whether a second-charge mortgage could be the answer for your client.

But there is far greater understanding among advisers too of the role that second-charge mortgages can play, and not just for debt consolidation purposes.

A year of home working has inevitably led to many homeowners looking afresh at their properties and how they might be reconfigured to work more effectively as not only a place to live, but to work in as well.

Not all advisers are entirely comfortable with second-charge mortgages though, particularly following the FCA’s ‘Dear CEO’ letter last year which announced its intention to continue closely reviewing the seconds sector, and the advice being given.

That’s where picking the right partner can prove invaluable, whether that’s going through a master broker or working with a lender.

There is no question that you will have clients this year for whom a second-charge mortgage will be the best answer.

Now is the time to ensure you have the right processes in place for handling those cases.

By Steve Brilus

Source: Mortgage Introducer

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Second charge business down but contraction easing: FLA

The value of new second charge business stood at £75m in November 2020 in the UK, down 35 per cent on the same month in the previous year.

The latest figures from the Finance and Leasing Association show the number of new arrangements in the month was 1,857, down 28 per cent by the same comparison.

For the three months to November 2020, second charge business was worth £199m, down 41 per cent and down 39 per cent on the 12 months to November to £759m.

The number of new arrangements in the 12 months to November 2020 was 17,651 down 36 per cent on the previous 12 months.

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FLA head of consumer and mortgage finance Fiona Hoyle says: “The level of new business by value and volume in the second charge mortgage market continued to improve in November and the rate of contraction compared with pre-crisis levels continued to ease. In the eleven months to November 2020, new business volumes in this market were 40 per cent lower than in the same period in 2019.

“Lenders are continuing to do all they can to support customers during this challenging period. If customers are experiencing payment difficulties we encourage them to contact their lender as soon as possible.”

By Rebekah Commane

Source: Mortgage Strategy

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Second charge market “gradually recovering”

The Finance & Leasing Association (FLA) has revealed that second charge mortgage new business volumes fell by 64% year-on-year in July 2020.

The trade body said that £40m worth of second charges were lent during the month from 966 cases.

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Fiona Hoyle, head of consumer & mortgage finance at the FLA, said: “The second charge mortgage market is gradually recovering with new business of almost 1,000 new agreements in July, up from a crisis-low of 486 new agreements in May.

“Lenders are continuing to do all they can to support customers during this challenging period and customers experiencing payment difficulties should contact their lender as soon as possible.”

By Kevin Rose

Source: Best Advice