From the SLS editor: Why so many column inches on second charge?

  • 06/03/2018
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From the SLS editor: Why so many column inches on second charge?
The second charge sector has garnered much attention this year and delegates at last week’s Specialist Lending Senate queried why so much of our journalist's time was being spent on such a small part of the mortgage market.

This view is understandable.

The mainstream mortgage market was worth £256bn in 2017 according to the Bank of England, and that does not include an estimated £100bn for product transfers.

Meanwhile, last year the second charge market accounted for more than £1bn in activity for the first time since the financial crisis, according to the Finance and Leasing Association.


Growing market

However, the good news is that second charge is a growing market, volumes were up 14% and cases up 10% in 2017. And it is still a £1bn industry.

It is anticipated that this growth may continue as market conditions, such as rising interest rates with consumers locked-in to longer term fixed-rate mortgages, make second charges more attractive.

This reason alone would be a good one for the market to consider its standing and examine whatever points may need to be improved upon.

But the Financial Conduct Authority’s (FCA) ‘concern’ about how the £1bn market is operating since being brought under the Mortgage Credit Directive (MCD) sector is clear and should be taken very seriously.


Serious situation

The regulator’s review of lenders last year forced some to take immediate action and prompted the FCA to call in lenders for a workshop later this month.

Then last week it sent a Dear CEO letter to the heads of lenders in the sector detailing “significant issues with how responsibly second charge lenders were lending”.

That letter is just one step down from full enforcement action – a serious situation indeed.

And the expectation from several sources within the market is that once lenders have been addressed, the regulator will refocus its attention down the line to distributors.


Further to go

To their credit, brokers and master brokers appear to have started tackling the key points concerning their part of the industry.

For example, clarity about the level of master broker fees and what is being charged has been improved.

However, there are still issues and there is still further to go, as prominent networks and lenders have noted.

Given all this, it is understandable that mainstream mortgage brokers may be hesitant to venture into the second charge market.


Positive transparent action

So yes, there is a risk that the second charge market is talking itself down and taking-up more column inches than it should, but unfortunately for good reason.

Positive and transparent action from all parts of the community to address these issues and adopt reforms will help to assuage the doubters and ensure clients receive the best outcomes, which may increasingly be a second charge loan.

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