Simon Mules, commercial director at Optimum Credit, takes the temperature of the second charge market
If the second charge market was gauged by the weather, we’d love to say we were having a ‘scorcher’ of a start to the first half of 2018, but as a market that’s not quite true!
Let’s be clear, in the first six months of 2016 we saw £442m of second charge mortgages; in 2017 that number has risen to £511m and while we wait for the FLA to confirm June’s figures, I suspect we are likely to see the first six months of 2018 yield close to £505m, so the market’s slightly down, or to be more optimistic, it’s not growing as quickly as we thought.
So, while the weather outside is reminding us of British summer times of yesteryear, are there reasons to suggest figures in the second half of the year will see the market once again surpass a £1 billion and bring the proverbial smiley faces to both lenders and brokers alike?
In short, the answer required comes in the form of one word: brokers!
Brokers know their job better than any lender can tell them, but why as a lender am I confident?
Thousands of you were happy to sing ‘It’s coming home’ and it didn’t; one day it might, similarly rates will rise, I can’t predict when, but one day I know it will happen. Recent data indicates that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up from its current rate of 2.4%.
Mark Carney also stated: “Domestically, the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate. A number of indicators of household spending and sentiment have bounced back strongly. The Monetary Policy Committee [which sets the interest rate] will continue to monitor incoming data and review prospects for growth and inflation in the UK in order to set monetary policy consistent with returning inflation sustainably to target.”
Brokers know when rates are due to rise it’s an ideal time to review their customers’ finances. History tells us that when rates rise refinancing increases. With rates from below 4% and LTVs available up to 95%, the products have never been so attractive.
Unsecured borrowing (debt consolidation)
It’s been hugely easy to obtain credit and indeed while some of the borrowing has been at very attractive headline rates, much of the borrowing is already at double digit rates. Banks and building societies are reporting a fall in consumer loans as they start to rein in their criteria as they fear the current levels of exposure in these areas are not sustainable, but the last few years have been a boom time for unsecured lending of all sorts (including credit cards).
When reviewing your next remortgage application, take time to assess the level of unsecured indebtedness, ask your customers what rates they are paying and over what terms, and when considering their overall affordability, assess the impact of what a rate rise might do to their overall circumstances, should they chose not to consolidate individual items of unsecured credit.
Home improvements or raising funds to purchase a buy-to-let property
Almost all lenders will lend money as long as the reason stated for the loan is legal; home improvements and raising funds for a buy-to-let and tax bills are just a couple of reasons.
You will regularly come across these enquiries. A second charge mortgage may be more suitable than a remortgage, especially if the customer has an existing interest only, tracker rate or an Early Repayment Charge on their first charge mortgage. All these details you routinely find out during your fact find.
Anyhow, enough of telling brokers how to suck eggs. During 2017 over 22,000 customers found second charge mortgages as a way of helping their finances, with increased broker awareness that number will rise as we rush through to 2019.
So, thank you ‘Mr and Mrs Broker’, you make the difference and can do so further in the second half of the year, by engaging with lenders and master brokers alike to find out if second charge mortgages are suitable for your customers.