Brexit fails to damage second charge

The latest edition of the Second Charge Report, which draws on Finance and Leasing Association (FLA) data from May-August, said neither Brexit nor the implementation of the European Mortgage Credit Directive (MCD) has damaged the market.

FLA figures show that new lending volumes in traditionally quiet August matched July’s figures – up 6% on last year. In July the total value of monthly second charge lending increased by 4% to £73m, up from £70m in June and at a comparable level to July 2015 when it was £74m.

On an annualised basis, the market has consolidated at just under £900m (£889m in the 12 months to August) of gross lending after a period of prolonged growth through 2015.

Enterprise said this flattening reflects the period of MCD-related market restructuring, but it puts the industry on a stronger footing for sustained, longer-term growth in future. It pointed to borrowers consolidating their debts and falls in interest rates making second charge mortgages more attractive.

It added that uncertainty makes it more likely that people will remain in their existing homes and improve them – one of the most popular reasons for turning to second charge.

Harry Landy, sales director of Enterprise Finance, said: “The Referendum’s fallout hasn’t come close to that of the last recession, which caused a severe liquidity crisis and a huge tightening of risk appetites. Since the vote we have seen deals continuing to go through unimpeded.

“It remains to be seen what the full impact of the vote to leave the EU will be on the second charge market, and the property market as a whole. Nevertheless, second charge lending actually increased between June and August, and data from the Council of Mortgage Lenders showed a similar growth in the level of remortgaging in that period, reinforced by the Bank of England’s latest data release. While would-be buyers may well be less inclined to purchase, homeowners have clearly not been deterred from accessing some of the excellent rates on the market – whether for second charge or remortgage borrowing.”

The report predicts a further boost to second charge if the Bank of England lowers the base rate again before the end of the year. Some second charge product rates have already fallen below 4%.

“Demand for second charge mortgages remains high as a result of underlying consumer needs, and is likely to increase further as a result of the cheaper deals which are trickling onto the market, following the cut to the base rate,” said Landy.