Value of second charge lending up 10% as volume drops

May data from trade body the Finance & Leasing Association (FLA) showed second charge mortgage sales reached £69m to give a 12-month total of £892m, up 27% on last year.

In the three months to May £206m worth of second charge mortgages were sold, an upswing of 3% compared with the same period last year. However, the number of products sold was down 9%.

FLA head of research and chief economist Geraldine Kilkelly said the fall in sales was down to “a significant period of change in this market” and firms adjusting to the Financial Conduct Authority’s mortgage regime.

The second charge lending market was transformed by the Mortgage Credit Directive (MCD), implemented on 21 March, which opened it up by handing mortgages and seconds equal regulatory status.

Following the MCD, second charges were no longer governed by the rules of the Consumer Credit Act 1974, which had prohibited brokers and lenders from charging fees upfront before the loans completed, effectively making the market the preserve of master brokers.

Brokers previously predicted levels of second charge lending would increase significantly following the implementation of the MCD as residential advisers will “no longer be able to ignore” second charges.

Overall, consumer finance new business grew 14% in May compared with the same month last year, to £7.3bn – or 11% in the last 12 months to £85bn.

However, the figures do not yet take into account the UK’s vote to leave the European Union, which was held on 23 June.

A survey by research group GfK showed consumer confidence post Brexit dropped dramatically and is likely to knock consumer spending.

The group’s Consumer Confidence Barometer saw the confidence index fall eight points to -9, the steepest drop in 21 years, with every key measure used to calculated the index falling.

Splitting the core result by how people said they voted in the referendum, remainers were at -13, versus leavers who were more optimistic at -5.

Head of market dynamics Joe Staton said: “Our analysis suggests that in the immediate aftermath of the referendum, sectors like travel, fashion and lifestyle, home, living, DIY and grocery are particularly vulnerable to consumers cutting back their discretionary spending.

“As we’ve learnt from previous periods of uncertainty, consumers turn to well-known brands they love and trust as a guarantee of quality and value for money. Now is the time for companies to understand and respond to consumer concerns by anticipating and meeting their needs.”

The survey was run from 30 June to 5 July to capture the mood of consumers immediately after the Brexit decision on 24 June.