An Evolving Market

David Robinson, sales and distribution director for residential mortgages at Shawbrook Bank, takes a look at the future of second charge mortgages

Some people may have felt that the introduction of the Mortgage Credit Directive (MCD) in 2016 would stifle the second charge mortgage market due to the increased scrutiny and regulation. I’m pleased to report however that the second charge mortgage industry remains buoyant, with the Finance and Leasing Association (FLA) reporting that in July 2018 new business was up by 6% in value, giving a total value of just over £1bn for the 12 months leading up to July – 4% more than in the previous year.
Despite this uplift in volumes, there is still significant opportunity for further growth in the market. When you consider that the size of the remortgaging mortgage market stood at around £10 billion as of October 2017 (source: UK Finance), in comparison, for the year 2017, the second charge market stood at just £1 billion (source: FLA). Whilst there is no doubt that in many occasions a remortgage is the more suitable and affordable option for your customers, this isn’t always the case. Sometimes a second charge mortgage is a better option, however as the figures suggest, it is often overlooked. Further education in the market can help ensure that second charge opportunities are considered further by brokers.

Although some time has passed since the MCD was introduced, the market is still evolving, especially since the thematic review undertaken by the Financial Conduct Authority (FCA) and the resulting ‘Dear CEO’ letters that followed that asked all second charge mortgages lenders to review their practices. As Shawbrook was one of the first to receive a FCA visit, this means that we were also one of the first to review and amend our product range and underwriting processes to be in line with the FCA’s recommendations. This has been a great opportunity for us and will help us to move forward in developing a really simple, sensible and personalised proposition that Shawbrook is known for.


The first of these changes that we have just announced is that we have simplified our underwriting process by moving to an automated model, reducing the amount of documentation required. The benefits of this model are twofold; firstly it gives us certainty that we are lending responsibly to our customers, and secondly our system gives a clear-cut decision as to whether a case fits or not, giving our broker panel certainty too. Automation is not there to undermine our underwriter’s ability to look at a case, once the system is bedded in it will give our experienced team the bandwidth to concentrate on the more complex cases. This allows us to ensure that customers with uncomplicated needs flow through our proposition as fast as possible, whilst those with more complicated requirements are listened to carefully. So, however simple or complex the deal ‘every second charge counts’ to us.
Following the thematic review undertaken on lenders, it was rumoured that the regulator would also be examining the distribution side of the market as well. It has now been confirmed that this is the case, and the FCA is now carrying out a review of the second charge master broker market. The FCA expanding the remit of its thematic review can only be a positive move for the second charge mortgage industry and should lead to a better market for lenders, brokers and consumers alike, ensuring consistency within the market and that everyone is operating on a level playing field with product, service proposition and price winning borrower business.