But a rate change will be the starter gun for action.
Borrowers who have base-rate trackers priced at an all time low or those sitting on a Standard Variable Rate not wanting to disturb their interest-only mortgage will start shopping around for a better deal.
The secured loan market has been the natural choice for many capital raisers in these positions, so will it be curtains on growth for this sector when Mark Carney makes his move?
This week we have asked our panel of secured loan experts to assess the impact of a surging remortgage market, in the wake of a rate rise, on the secured loan sector.
Darrell Walker, head of intermediary at The Lending Wizard, says brokers should continue to give clients best advice whether a remortgage or secured loan as they always have.
Simon Stern, business development director, Prestige Finance thinks it is a mistake to believe that the performance of one market is related to the sucess of another.
Paul Brett, director of sales at Masthaven Secured Loans, says given the nervous reaction of first charge lenders to the MMR rules any rise in rates may make it more difficult for borrowers wishing to remortage to be approved.
Danny Waters chief executive, Enterprise Finance, thinks a rate rise will drive more business into the secured loan market
Darrell Walker, head of intermediary, The Lending Wizard
One of the biggest changes between the mortgage market of five years ago and the market we’re likely to see in 12 months’ time is the role played by the regulator.
Since consumer credit was brought under the authority of the Financial Conduct Authority in April, secured loans have become subject to similar guidelines and can be treated as equally viable products for brokers to use, depending on the purpose of the loan.
Because first and second charge loans are now all under one roof brokers are given the additional regulatory incentive to ensure they are providing the most appropriate product to the borrower for their individual circumstances.
In theory, this means that brokers should consider the value of a secured loan against the value of a remortgage as the best option for any client to whom it may be appropriate.
A rise in the base rate is a very likely occurrence over the coming year, but the effect this will have on the value of secured loans against remortgages is open to some debate.
Many believe that a rising base rate will encourage borrowers to remortgage, securing any additional funds they need in the process. However, another school of thought suggests that the predicted rapid shift from tracker mortgages to fixed rate deals will leave a high percentage of the market on three or five-year deals, which will become more valuable with each passing year. For these borrowers, a secured deal can be one of the only ways of accessing a large loan amount for the next half decade without potentially sacrificing a great mortgage deal.”
Simon Stern, business development director, Prestige Finance
First of all, I think it is a mistake to think that a resurgence in the remortgage market infers that there is an automatic link to the welfare of the second charge sector.
We have seen that one of the side effects of the interpretation of the MMR by some first charge lenders has led to brokers having to explore second charges more readily.
There is also plenty of evidence that brokers have been crossing over to a second charge solution for the first time, which has helped boost the sector.
However the premise that a fully functioning remortgage market is going to take business away from second charges is speculative to say the least. For remortgaging to remain the ‘natural’ path for capital raising will only be tested as we settle more comfortably into a post-MMR regime in the next twelve months or so.
Both remortgages and second charge lending have something positive to offer clients. Not everyone wants to saddle themselves by adding to a long-term mortgage commitment and there are ample reasons why a remortgage might not be a suitable solution for a client, as it depends so much on circumstances.
However, the regulator has made it very clear that it expects advisers to explore the suitability of all funding options and when it comes to capital raising I am very confident that second charge lending can more than hold its own.
Paul Brett, director of sales – Masthaven Secured Loans
The question presupposes a rise in interest rates that would tip borrowers to favour a remortgage over a second charge loan. I am not convinced that this would actually be the case. While the Bank of England Governor, Mark Carney, seems to have been dropping large hints to prepare us for a rise, there also seems to have been contradictory quotes from the same source, particularly over timing and severity of any rise.
Also let’s look at the morale of lenders in the wake of the MMR. It is no exaggeration to say that interpretation by some lenders has been of the ‘squeaky bum’ variety in its affordability calculations. If the rush of new business enquiries from brokers exploring second charges is anything to go by, first charge lenders are going to have to do some work reestablishing confidence among advisers that their clients aren’t still going to be rejected for that remortgage.
Let’s also remember that if the current attitude shown by some first charge lenders has been anything to go by, a rate rise is likely to see them having a fresh panic over stress testing in the wake of any rise. So I don’t see a kind of stampede to remortgage to raise capital. Because while there might be a willingness on the part of the customer and adviser, unless there are major changes in the risk and compliance departments of first charge lenders, remortgages will remain selective.
Second charge lending will continue to thrive regardless.
Danny Waters chief executive, Enterprise Finance
Now that rates are expected to move up (as early as the Autumn, perhaps), and that house price rises have given homeowners some ‘LTV wriggle room’, does that mean secured loans are set to become a peripheral product – surplus to requirements? Not at all.
First and foremost, a secured loan is designed to complement a remortgage, rather than replace it. There is zero friction between the two.
Also, when the mortgage market improves, it leads to increased transactions across the entire sector and this inevitably trickles down to the secured loans market.
Crucially, with interest rates only going one way, we expect to see a strong increase in the up-take of long-term fixed rate mortgages.
Given that long-term fixed rates will generally come with early repayment charges, secured loans will be an attractive solution for those who want to borrow money in their tie-in period.
Added to this, the flexibility of secured loans continues to be a big draw to many borrowers.
Not only are processing times far quicker than remortgages – a typical completion time of just two to three weeks – the application process is far less stringent than that of a mortgage, especially since the MMR.
The new lending regime will see many homeowners, who are refused a remortgage, turn to a secured loan for a cash injection instead.
For this reason and the ones given above, we are very confident that the growth of secured loans will not diminish in the years ahead but go from strength to strength.
