Second charge market to see 10% growth spurt in two years, say brokers

V Loans said the majority of brokers (59%) expected the value of their seconds business to grow 10% over the next two years, spurred by better consumer protection under the new regulatory regime.

The master broker said two in five (40%) brokers have already reported an increase in loan applications since the implementation of the regime in March.

Brokers believe greater customer protection through increased regulation was the key driver of this growth, V Loans said. Other factors included access to larger loan sizes (39%), declined mortgages (37%), affordability criteria (35%) and second charges offering more flexibility for borrowers with more complex circumstances (34%).

The MCD brought second and first charge mortgages under one regulatory regime supervised by the Financial Conduct Authority on 21 March this year, aligning regulation of the first and second charge mortgage markets.

About half (49%) of brokers told V Loans seconds had become more important to their business due to the new regulations, while 59% said they were more likely to consider a secured loan for customers who need to raise capital.

The specialist master broker, which is part of Key Retirement Group surveyed 109 brokers in early September.

Managing director Marie Grundy (pictured) said: “The second charge lending sector has been subject to unprecedented regulatory change in the last six months. We believe the sector post MCD is moving in the right direction.”

Positive Lending chairman Paul McGonigle agreed the market has grown since the MCD but stopped short of predicting the rate of further growth.

“We can certainly say that our second charge mortgage business has grown significantly and, we believe, it will continue to do so,” he said. The firm launched a flat fee model in May and said completion volumes have doubled since.

McGonigle said: “Brokers are becoming more au fait with the alternatives to a remortgage or further advance, they are now documenting and providing evidence of the financial alternatives available to borrowers – which is one of the reasons why second charge mortgages are more likely to be considered.”

However, seconds can be costlier than other loans, so matching the right borrower with the product was important, McGonigle said.

“There are many examples as to when a second charge mortgage offers a good outcome for the client, one example would be where the borrower has a lifetime 0.5% BBR tracker and does not want to disrupt this mortgage,” he said.

He explained funding options should not be considered on rates alone but on the overall expense for the expected duration of the transaction. “I would argue a product with a rate of 4.18% with no lender fee in and no tie-ins is very competitive when considered against a remortgage or further advance,” he said.

“A skilled broker understands the full picture and finds the best outcome available.”