More prime borrowers turning to second charge for home improvements – Evolution Money
This was a rise from the nine per cent who went to the lender for second charge loans for the same purpose in the previous quarter.
According to its second charge mortgage tracker, more prime borrowers are using such loans for combined home improvements and debt consolidation, with the proportion of those doing so increasing from 29 per cent to a third.
Those using second charges for the sole purpose of debt consolidation dropped to 43 per cent from 59 per cent over the same period.
The average value of debt was also smaller, falling from £26,657 to £20, 447 in the three months to May.
Quick in and out
Furthermore, prime borrowers were taking out less money and borrowing for shorter terms, the analysis found.
Compared to the previous quarter, the average loan amount dropped from £35,726 to £33,650 with the average term reducing to 166 months from 157 months.
Borrowers also required a lower share in equity for the loan, evident by the average loan to value (LTV) dropping to 69.4 per cent from 77.4 per cent LTV.
Debt consolidation borrowers required slightly larger loans in the quarter to May, with the average loan rising from £20,558 to £21,290.
Meanwhile, typical second charge mortgage terms for debt consolidation borrowers shortened to 125 months from 131, while the average LTV fell from 74.2 per cent to 72.4 per cent.
The share of debt consolidation borrowers using second charges to pay a loan provider remained flat at 49 per cent, while 27 per cent used the money to pay a bank and 17 per cent needed the money to pay off retail credit.
Overall, the share of prime borrowers against debt consolidation borrowers was relatively flat with a respective split of 26 per cent to 74 per cent, compared to 25 per cent to 75 per cent previously.
Steve Brilus, CEO of Evolution Money, said: “Our second iteration of the Evolution Money second charge mortgage tracker shows some similarities with the first, but also a number of deviations, particularly when it comes to prime borrowers and the likelihood they will use the proceeds from their loans for other purposes beyond debt consolidation.
“There’s still no doubting that the vast majority of both debt consolidation and prime borrowers are using seconds to pay off debts from various sources, but the number of prime customers purely using them for that purpose has dropped from 59 per cent to 43 per cent, while home improvement usage has increased.”
“Given the nature of the first-charge market at present, with the huge levels of volumes having to be completed before the end of the stamp duty holiday deadlines, it is perhaps no wonder that many customers are not willing to put themselves into that ‘bun fight’, particularly those who want to keep competitive first-charge mortgages, who don’t or can’t remortgage, but still see the opportunity to use their existing equity to fund home improvements.
“Securing a first-charge remortgage in this situation, with many lenders and conveyancers stretched beyond their capacities due to the huge demand they are facing, is difficult, and given we – as a second-charge mortgage lender – can provide the funds required in a matter of days, it is no wonder many advisers are looking at the second-charge options available. We sense that demand from these sources will continue to grow,” he added.
Koodoo and Fluent Mortgages partner to offer mortgage comparison service
The Koodoo platform will integrate Fluent’s contact management system and its MyFluent app with lending application portals to assist customers through the application process.
By using the mortgage comparison tool customers can get a better understanding of their eligibility and acceptance prospects, and choose to apply directly to the lender or via Fluent.
The partnership will also provide reporting and analytic capabilities to consumer sites which will allow them to measure performance and support customers over the course of their mortgage.
Koodoo chief executive and co-founder Seb McDermott said: “Together with Fluent Mortgages, we have developed a mortgage journey that is unique in the market in offering an outstanding digital user experience, expert support over the phone and a choice of applying via a broker or direct to lender.
“Our partnership means consumer sites can get to market quickly with a journey that provides outstanding mortgage support to their audiences and delivers commercially.”
Fluent Money Group’s commercial director Paul Ford said: “We have a shared focus on enhancing the customer experience in the mortgage market, something that is very much a combination of outstanding service and leading-edge technology.
“This partnership is further evidence of our ambition to disrupt the market and offer a next-generation experience to consumers on their mortgage journey.”
Video: Second charge mortgages can boost Bank of Mum and Dad lending power – West One Loans
Speaking on Specialist Lending Solutions Television, the lender’s managing director of second charges, Marie Grundy said there were “opportunities,” for second charge mortgages to support family-assisted borrowing.
Grundy said: “It may be for borrowers who have savings, but don’t necessarily want to use all of those to donate to family members. Or to give them a larger deposit so they can access lower LTV lending in the first charge market.
“That’s why we brought out specific criteria to support that borrowing.”
In May, the lender upped its second charge lending limit from 80 per cent loan to value (LTV) to 85 per cent. West One Loans reduced rates and the minimum loan size. It also widened the criteria to borrowers from any profession and to allow annual bonuses.
“It’s becoming more and more popular over time and hopefully other lenders will follow suit and second charges will be recognised as a really ideal way of accessing that type of borrowing,” Grundy added.
Watch the fourth and final part of the video series [7:07] below, hosted by editor of Mortgage Solutions, Victoria Hartley.
Know Your BDM: Natalie Kay, Evolution Money
What locations and how many advisers and broker firms do you cover in your role?
At the moment I am looking after 30 brokers, introducers and affiliates, but the number is growing every day. They range from small independent brokers to large master brokers and they’re based all over the UK so I’m really excited to get on the road.
How have you changed the way you establish and maintain a good relationship with brokers in the pandemic?
We have had to adapt as I am sure many people have had to, using Zoom or Microsoft Teams – other video call brands are available – and regular calls and emails trying to keep up a presence in the market albeit virtual now.
Throughout lockdown I became a bit of a whiz at Zoom after numerous quizzes with family and friends, so it definitely came in handy.
What personal talent/skill is most valuable in doing your job?
Great communication skills are vital. Obviously, the role is building new relationships, and due to the pandemic, re-engaging with existing partners has also been key.
I would say you definitely have to be organised with the ability to multi-task. I love how busy the role is and how most days just fly by. Coming from a sales background I know how important a speedy response is. No day is ever the same, and I get to speak to a variety of different people every day.
What personal talent/skill would you most like to improve on?
I suppose being new to the role I want to gain a better understanding of the finance sector from a BDM perspective to help build more relationships but also strengthen existing ones too.
Where would you rather be stuck, in bumper-to-bumper traffic or back-to-back Zoom calls?
I hate being stuck in traffic. My partner’s family live in Kent, so we regularly get stuck on the M6 after visiting them. On one occasion we got stuck over night from 10pm until 5am so I would have to pick the back-to-back Zooms but would need gingerbread skinny lattes on tap.
What’s the best bit of career-related advice you’ve ever been given?
Listen more than you speak. You were given two ears and one mouth for a reason. I love this quote as it’s so true; the best conversations I have are when I have to say very little.
I found this incredibly helpful when I was an underwriter too.
What is the most quirky/unique property deal you’ve been involved in?
Having over 15 years in the finance industry I have completed on a variety of different properties. They all are unique in their own way. To be honest I find the people I help much more interesting and memorable than the properties.
I always remember the ones I really made a difference to. That is what makes the job really rewarding.
What has been your lockdown coping strategy?
I got a puppy. His name is Otto and he a Miniature Schnauzer. He’s nearly nine months old now and has been a life saver. He’s my escape from home schooling and a break from looking at my screen. We had always wanted a dog, but it was never the right time until lockdown came, he’s just perfect.
Overall working from home has been great apart from the odd home-schooling tantrum. You don’t mind responding to some emails after hours as your commute is only to the next room.
If you were head of the FCA for the day, what would you change about regulation in the mortgage industry?
I would make sure all lenders and advisers play by the same rules and make sure no rules are bent and no boundaries are pushed.
What was your motivation for choosing business development as a career?
I felt I needed a new challenge. I went on a broker visit with another BDM and really enjoyed it. It was great to speak to the underwriters and gain an understanding of the whole customer journey.
I felt with my experience as an underwriter at Evolution that I could really make a difference. When the opportunity came up, I jumped at it. I’m really looking forward to meeting people in person when we are finally allowed to.
If you could do any other job in the property sector, what would it be and why?
I think maybe some sort of celebrity estate agent or interior designer. I love looking at other people’s houses, stealing home décor ideas from Instagram and seeing how the other half live.
I can lose hours to the Rightmove app trying to find my dream home. Or alternatively, something where I can work with animals – I’d love to run a doggy day care business.
What did you want to be growing up?
A professional basketball player; I even got offered a scholarship in America. Or a PE teacher. Things turned out a little different though. I went to university to be a PE teacher and to have religious studies as my second subject. Strange combination I know.
So much so, there was only one university that offered it. I soon discovered it wasn’t for me. I think it takes a special kind of person to teach 11 to 16-year-olds and I didn’t feel I was the right fit.
I fell into a finance company after university as an admin assistant and worked my way up. I love how the role enables me not only to help people but also educate them to reduce any further risk of financial difficulty.
What’s your favourite face mask design/pattern to wear?
It has to be my Liverpool FC face mask, bright red with the Premier League trophy on it from last year. Although I get some funny looks while wearing it on the tram in Manchester city centre. I keep my head down while going passed Old Trafford. Maybe I should just stick to a red one?
And finally, what’s the strangest question you’ve ever been asked?
I have been asked many strange questions but the one that sticks with me is when I took my niece to Chester Zoo and she asked: How long does it take a giraffe to throw up? I thought she was trying to tell me a cheesy dad joke but no, it was a real question.
West One Loans increases second charge LTV limit and amends criteria
The Apex 1 offering is for borrowers whose credit score is less than perfect or for those with historical credit issues.
Rates have also been reduced, including a two-year fix up to 85 per cent LTV. This has been cut from 5.85 per cent to 5.25 per cent and no longer has early repayment charges (ERCs).
Five-year fixes have also been cut and now start from 5.35 per cent, previously 6.19 per cent with ERCs or 5.85 per cent, down from 6.49 per cent without ERCs.
To align with the easing of coronavirus restrictions, West One now accepts applications from borrowers from all employment sectors as long as they are not currently on furlough.
Annual bonuses will be also considered for employed borrowers including non-key workers.
In addition, the minimum property value for borrowers living in ex-council houses has been reduced from £150,000 to £100,000, up to 75 per cent LTV.
Marie Grundy (pictured), managing director, second charges at West One Loans, said: “Since the start of 2021 we have seen strong demand for our second charge mortgage products with borrowers taking advantage of record low interest rates.
“Increasingly, we are seeing greater diversity both in terms of loan purpose and the profile of borrowers benefitting from second charge finance. For example, more higher value loans are being taken out for home improvements by people with property valued above £1m.”
“At West One we are constantly looking at ways to improve our product offering to ensure we are reaching a broad range of borrowing needs. This latest set of changes support that ethos,” she added.
‘There is pent up demand for secured loans out there’ – Grundy
Marie Grundy, MD second charges at West One Loans speaks to Mortgage Solutions group editor Victoria Hartley about the way lenders adjusted their credit risk appetite during the pandemic, allowing the market to rise to £90m in March, a 31 per cent month-on-month increase on February.
“What we’ve seen is quite a lot of pent up demand from borrowers since the pandemic. Some of the more popular reasons include home improvements, with more and more people working from home and wanting to make changes to their lifestyles.”
For more on how the pandemic has changed the second charge market, watch the second in this series of one-to-ones with West One Loans below.
Paragon exits second charge market after two decades
The lender will honour pipeline applications and accept new submissions until 5pm, Friday 21 May.
It will focus on its core buy-to-let activities in the future.
John Webb, managing director of seconds at Paragon (pictured), said: “I’d like to thank brokers for the support they’ve shown us over the last few years. Many of them I’ve worked with for more than 30 years.
“I’d also like to thank the Paragon team for their hard work and dedication over two decades, and hope they will take up alternative roles within the group.”
Shawbrook completes TML buyout and launches BTL platform
On the business finance side, it has rolled out its digital tools intended to enhance and automate customer journeys and for consumers, a new credit scorecard and price testing has been implemented.
The specialist lender reports a strong financial and resilient operational performance over Q1 2021 and reports the completed acquisition of TML.
At the time, Shawbrook said it intends to retain both brands with growth plans for TML strengthened by access to Shawbrook’s retail savings arm.
Shawbrook Property finance managing director John Eastgate said the combination of the two businesses creates an even more powerful force in the specialist lending market.
He added: “The experienced TML leadership team will strengthen our existing management as we enhance our presence in the specialist lending market.”
The bank reported loan book growth of 5.4 per cent to £7.5bn, driven by improving origination levels and demand from new-to-bank property finance and business finance customers.
It also cited ‘positive movement in arrears’ trending towards pre-pandemic levels, following the wind-down of payment holidays.
Ian Cowie, chief executive, said: “We have continued to invest heavily in our digitisation agenda, introducing a new buy-to-let origination platform in property finance and building significantly scaled automation tools in business finance to ease the customer journey, in-life management and portfolio analytics.”
He added: “With an improving economic backdrop, strengthening demand for our specialist lending proposition, a robust capital position and a strong funding base, we are ideally placed to build on this continued momentum throughout 2021 and into 2022.”
Second charge sees rise in large loans and home improvements – Grundy
In fact, we have seen an increase in interest from high-net worth individuals during the pandemic, and this has escalated since the start of this year.
From the end of the first Covid lockdown there has been more demand from high profile borrowers wanting large loans particularly for home improvements and property purchases. They have been turning increasingly to second charge mortgages to raise substantial amounts of money.
There is a need for greater flexibility in loan sizes which cannot always be obtained via a further advance or a remortgage to complete significant high end refurbishment projects. This in turn has led to us seeing a different type of borrower who typically owns high value property at £1m plus. With loan sizes available up to £500,000 at 65 per cent LTV and record low interest rates, second charges can be an attractive alternative to a remortgage.
Pandemic home improvements
The pandemic has changed the living requirements of many people who find themselves both living and working from home. They want more space for an office or to home school their children so there has been an uplift in extensions and loft conversions.
By being forced to spend more time at home due to lockdowns, people are looking to improve their surroundings so opt for a new kitchen or bathroom or completely redecorate the house. They may want to landscape the garden so they can have family and friends over in a Covid secure outside environment or create a children’s play area.
Often there is a large amount of equity in their home and therefore a smaller LTV. Their first charge mortgage rate is low which can mean it is often best advice to avoid disturbing existing mortgage arrangements; and in addition any early repayment charges would make it expensive to remortgage.
This is a great opportunity for brokers to advise people of another option, which is to raise the required finance via a second charge loan.
Because loan sizes are generous in the second charge market, terms can be flexible. For example, if a borrower has 15 years remaining on their first mortgage, they have the option of taking a second charge of up to 30 years. And this also includes flexible features such as the ability to make overpayments.
In addition, we are seeing more HNWs wanting second homes and using secured lending for the deposit. This can be for people living in city centre apartments wanting a rural retreat or a country or seaside bolt hole.
Conversely, there are borrowers taking advantage of the downturn in property prices in cities like London, particularly HNWs investing in buy-to-let property. The second homes and BTL investments have also been spurred on by the stamp duty holiday – now extended until the end of June.
We expect to see this trend in borrowers owning expensive property requiring larger loans to continue. The pandemic has changed our lives in many ways and our homes are seen as ever more important with people wanting to make improvements to their surroundings or acquire further properties for personal use or investment purposes.
Together and Optimum Credit update second charge offerings
Together has launched a limited edition two-year fixed prime plus deal with an interest rate of 4.29 per cent for capital repayment and 4.79 per cent for interest only.
It has also cut the rate on its five-year fixed second charge products by a full one per cent to 4.99 per cent for capital repayment and 5.49 per cent for interest only.
The lender has also increased the maximum LTV for its second charge term products, which are initially available for three months, from 70 to 75 per cent.
And Together has reduced the number of supporting documents brokers must submit during the personal and commercial finance application processes — by updating what document checklists its broker portal requests and streamlining the credit search process.
Sundeep Patel, director of sales at Together, (pictured) noted that self-employed customers, freelancers and contractors, those on zero-hour contracts and retired people may be eligible for loans.
“We expect demand in the second charge market to grow significantly throughout this year and are refreshing our product offering,” he said.
“These changes may help borrowers who have been locked out by high street lenders.
“At a time when people’s circumstances may have changed due to coronavirus, we think it’s important that lenders offer flexible criteria and competitive rates to increase the choice available in the market.”
Meanwhile, Optimum Credit has today released a new suit of products called Optimum Plus.
Broker firm Loans Warehouse said the product range has been designed to target underserviced areas of the markets.
This included newly self-employed applicants, borrowers with complex and multiple income streams, benefits or variable income and would offer longer terms for older borrowers.