Maximum loans sizes have been raised to £500,000 on prime product ranges, and a new five-year fix has been added with early repayments charges to its Apex 1 range.

The lender will consider regular overtime and commission for non-key workers, where this is sustainable and in line with previous year’s earnings.

And on buy to let, loan sizes are to be increased to £250,000 as the lender reinstates pre-Covid lending criteria, which includes considering loans for ex-pats and licensed HMOs.

On residential, the lender will also consider workers returning from furlough. To be eligible, the borrower must return to work on full pay and pre-furlough hours. Borrowers exiting payment holidays will also be considered if they have made at least one full contractual mortgage payment.

Marie Grundy, sales director at West One Loans (pictured), said: “I am proud that West One has been able to play a significant role in ensuring that a wider range of borrowers can continue to access second charge finance throughout these uncertain times.

“At a time when mortgage intermediaries are working in more challenging circumstances, with particular regard to service and product availability, it is more important than ever that specialist finance products, such as second charges, are considered as part of the standard advice process to ensure borrowers needs are being met by the most appropriate product.”

After a carrying out a pilot scheme to test its systems and bring back key staff for a limited service, the company is reopening doors to all its intermediary partners.

Tony Marshall (pictured), managing director, said: “Equifinance is in a strong position with reliable funding lines in place and a real appetite to lend.

“It is good to be back lending and with the ongoing affordability concerns of many first charge lenders, there is no doubt in my mind that more customers and their advisers are going to find themselves looking to specialist lending avenues as high street choices tighten their lending criteria, regardless of a potential borrower’s story.”

Marshall added: “Second charge lending has much to offer those who are looking to raise capital but are finding the remortgage route impassable.”

Figures from the Finance and Leasing Association showed that second charge mortgage volumes had dropped 71 per cent year-on-year in June with just 661 new agreements arranged.

The value of new business in the month reached £27m, a decline of 74 per cent compared to last year.

Presenting at the Mortgage Vision event David Paton, business development manager at the packager, noted that the sector had been hit by the lockdown but was recovering.

“Although lender criteria has changed, there are still products available to help clients,” he said.

“The major issue is that the majority of lenders are working remotely and this has slowed down progress of cases coupled with obvious lender caution of which we’re all experiencing to a degree at this time.”

However, he added that levels of enquiries had increased consistently since lockdown was eased and there were several key reasons that second charge loans were increasingly important in the market.

Brokers may want to consider them in cases where borrowers have an exceptionally good existing mortgage which they don’t want to lose – for instance, a base rate tracker.

Another scenario may be where clients are tied into longer term mortgage deals where they would incur hefty early repayment charges.

Second charge could also work where the client is on an interest-only mortgage.

Declined by mainstream

However, the largest reason for growth in second large is typically where cases have been declined by mainstream lenders, according to Paton.

In these cases, it is usually either affordability or loan purpose that have caused the issue.

Paton said: “In terms of loan purpose within the second charge, the criteria hasn’t altered – the client can still get a loan for any legal purpose whatsoever – be it, raising money for a tax bill.

“Clearly consolidation or home improvements are the major factors, but any other appetite might be medical bills, school fees, deposit for a buy to let, extending a lease on a buy to let, or any manner of luxury purchase.”

Paton talked through case studies of clients who have used second charge during the pandemic.

Scenario planning

In one case, a borrower was looking for a loan for his business; he had the opportunity to purchase the company he worked for at a cost of £250,000.

The borrower’s property was valued at £550,000, with a current mortgage at £20,000.

The scenario was outside of criteria, in part, because the client was going from employed to a business owner, and because of future income levels.

But Fluent were able to find him a five-year fix at 4.95 per cent with no early repayment charges.

In another case, a client was looking to make a luxury purchase of a holiday lodge in Scotland worth £223,000.

The client’s property was worth £700,000 with a mortgage balance of £201,000.

The solution was a loan over 20 years at 4.2 per cent.

During renovations the couple had decided to live in rented accommodation, however, Shawbrook’s criteria states that any applicant must reside in the security for a minimum of three months.

However, given that the property was habitable and Shawbrook was not lending for heavy refurbishment the lender made an exception.

The bank obtained written confirmation on how long the works would take and a formal notice from the applicant to the landlord confirming they would end their tenancy by November, by which time they were happy to move in.

A full valuation was carried out and the surveyor confirmed the security was habitable and mortgageable.

As a result, the applicants were able to raise the funds required receiving an offer within three weeks of submission.

The case came through broker Fluent Money.

Group director Simon Moore said: “This case was a great example that there will always be scenarios in the market place where standard criteria simply doesn’t cover or was not designed to capture this particular instance.

“Affordability was not an issue and the rationale behind the clients not living there was clear, could be evidenced with schedules of work and timescales making this a temporary problem.

“The case needed a quick response and once the salient points were presented to the lender, and if they were to accept, then full commitment to hitting the deadlines would be needed.

“In the current climate where we are seeing fresh challenges and an ever evolving landscape it is great to have the support of lenders who are willing to consider excellent cases, albeit they have aspects to them that previous criteria may not have taken into account,” he added.

Gavin Seaholme, head of sales property at Shawbrook (pictured) added: “Working with our partner, Fluent Money, we have succeeded in providing a great solution for the applicants.

“Our continued support for our brokers in the current climate shows that we are a safe pair of hands as we move forward with more positive news and an appetite for larger applications that we will deliver on.”

The problem it seems, is not so much a case of lending appetite by the big lenders in this part of the market, but a combination of some lenders pulling back and high customer demand.

This has put serious operational demands on those lenders that have continued to serve the high LTV market leading to lenders pulling products to manage their service levels.

And this pattern has filtered down to the 85 per cent LTV market and even, to some extent, the 80 per cent LTV market.

Capital raising challenges

The impact of this on homebuyers has been well-discussed, but perhaps less well-known is the impact it is having on your clients who are looking to capital raise.

This group faces a number of challenges.

Many lenders have pulled back from offering further advances and on remortgages there are fewer options at higher LTVs.

Couple this with a property market where surveyors are taking a conservative view on values and homeowners’ options to raise money through remortgaging becomes much more limited.

This is at a time when, having been stuck at home for more than three months, and with many people missing holidays, appetite to carry out home improvements is booming.

The Kingfisher Group, which owns B&Q and Screwfix among others, said its Q2 2020 like for like sales increased by nearly 22 per cent on the same period last year.

So, with the growing appetite for home improvements at odds with a narrowing opportunity for homebuyers to raise extra funds on their first charge mortgage, what are your options?

Up to 110 per cent LTV

The second charge market continues to present opportunities to capital raise at higher LTVs.

In fact, in the right circumstances, there is a product available that can lend at 110 per cent LTV, and the market is becoming more competitive elsewhere.

We have seen reduced credit score requirements, providing greater acceptance rates on residential second charge applications up to 95 per cent LTV.

Furlough income can be considered on a case by case basis, and in such cases we can use 80 per cent of clients’ income to a maximum of £2,500 per month, and we can also consider any evidenced employer top-up in addition.

Other lenders have re-introduced products at 80 per cent and 85 per cent LTV.

These high LTV options are ideal for people looking to carry out home improvements where they will be increasing the property value, but they can also be taken for a range of other uses.

High LTV lending may be sparse in the first charge market, but don’t forget there is still opportunity when it comes to second charge mortgages.

The system eliminates the need for email and post as it allows brokers and lenders to digitally transfer and share customer documents and evidence such as biometric ID results, E-signed agreements, payslips and bank statements. 

The instant messenger service also allows information to be exchanged immediately and shared with the customer throughout the course of a loan application. 

The B2B Digital Messenger App was developed as a result of Nivo’s recently formed Second Charge Lenders Technology Steering Committee of which United Trust Bank, Freedom Finance and other second charge lenders and brokers are participants. 

Buster Tolfree, commercial director – mortgages at United Trust Bank, said: “It is important for UTB and the second charge industry that we continue to create quicker, smarter and more secure means of processing applications and delivering great customer outcomes.” 

Josh Bowe, head of digital operations at Freedom Finance, added: “We are delighted to partner with United Trust Bank on this initiative.  

“We have already built a very strong partnership with UTB, but this innovative process further enhances our relationship as it enables faster and smoother underwriting across both businesses while improving our customers’ experience.” 

The lender is also making a baseline prediction that house prices will fall 2.6 per cent in 2020 with another slight dip of 0.3 per cent in 2021, before recovering by more than three per cent in each of 2022, 2023 and 2024.

Overall, the lender posted a profit before tax of £5.9m in the first six months of 2020, down from £55.6m in the same period of 2019.

It expects coronavirus-related loan losses to reach more than £47m, in addition to its already projected £61.1m loss allowance.

Shawbrook said it had granted a total of 15,900 payment holidays to support customers with 10,800 still in force as at 30 July 2020.

Property finance

Its property finance loan book, which includes buy-to-let, second charge and other specialist mortgages, grew by £300m during the period to £4.7bn.

However, Shawbrook did not disclose how much new lending it had completed during the period.

It said 6,200 property finance payment holidays had been granted up to 30 July 2020 covering 29 per cent of balances. Some 60 per cent of customers had matured from their first payment holiday with 4,100 still in force at 30 July.

The lender admitted property-related profit before tax has been hit by expected loan losses and slowing originations in the second quarter of 2020, but net operating income was two per cent higher at £72.5m.

“The property finance division had a positive start to the year and while Covid-19 inevitably slowed progress, the business delivered well throughout H1 2020, reflecting the depth of relationships held with our intermediary partners and the commitment and ability of staff to work remotely,” the lender said.

“The seamless move to remote working enabled us to maintain the strong relationships held with our specialist partners and customers, underpinned by a regular communication programme and the delivery of several product and system initiatives including the use of automated valuation models and new online application functionality for payment holiday requests.”

Second charge and BTL

On the residential side it said 2020 started well, “reflecting our renewed focus on the second charge mortgage market”.

“In January 2020, we restructured our sales team to deepen relationships with our existing intermediary partners and to adopt a more proactive approach to new business.

“As a result, in Q1 2020 we saw improved levels of new lending and, although this has since fallen, we have continued to complete new business throughout the period,” it added.

Where buy-to-let (BTL) was concerned, it noted: “We have now laid the foundations for a fully digitalised mortgage journey across all of our products and in H2 2020 we will continue to develop this technology to improve the application process.”

Development finance

Development finance is included within the business finance division, alongside asset finance, corporate lending and structured finance for SME customers.

Here, 4,300 customer payment holidays were granted up to 30 July 2020, covering 39 per cent of balances – 66 per cent of these customers have matured from their first payment holiday with 2,500 still in force at 30 July.

It noted that with several transactions completed in January 2020, the business exceeded £500m of facilities for the first time, but added that the lockdown had delayed some projects.

“The solid Q1 momentum advanced the business through the second quarter, delivering on commitments made pre-lockdown, despite the practical and logistical challenges created by the crisis,” it said.

“To date our existing development finance portfolio continues to perform well, however, active monitoring suggests some schemes may take longer to complete due to delays caused by the UK lockdown.”

Recovery in new lending

Shawbrook chief financial officer Dylan Minto said that even allowing for the loss adjustments the group was profitable for the half year, with strong liquidity and capital ratios.

“While we have started to see a recovery in loan originations across some of our markets, H2 2020 trading performance will be dependent on the speed of economic recovery as the lockdown restrictions ease,” he said.

“However, the longer-term economic impact of Covid-19 remains unclear and will be tested further when the UK government relief packages are withdrawn and as payment holidays end.”

Figures from the Finance and Leasing Association (FLA) showed the value of new business in the month reached £27m, a decline of 74 per cent compared to last year. 

For the 12 months to June, the value of new second charge business reached £1.03bn and there were 23,156 agreements.

Compared to the previous 12 months, both the value and number of agreements saw respective falls of 11 per cent. 

Geraldine Kilkelly (pictured), head of research and chief economist at the FLA, said: “The relatively slow recovery in second charge mortgage new business volumes reflects the gradual re-opening of the economy and continued household caution as the outlook for employment and the progression of the virus remains uncertain.  

“Lenders are continuing to do all they can to support customers during this challenging period and customers experiencing payment difficulties should contact their lender as soon as possible.”

It has also added a webchat facility to support broker queries and clarified case packaging guidelines.

The specific professional contractor mortgage criteria applies to those working in industries such as IT, healthcare, business management and other sectors where six, 12, and 18-month contracts are common.

Previously these were included within self-employed criteria but UTB said it expects this move will give brokers more clarity when advising professional contractors.

A minimum 12-month contract history with at least one renewal is required, along with 24 months in a similar role and if less than three months remain on the current contract, evidence of a renewal must be provided and signed by both parties.

Gross annual income will now be calculated at the day rate, times five days, times 48 weeks.

The latest three months’ bank statements, plus other documents depending on the source of income, will be required for proof of income.

The criteria is available across all existing residential mortgage and second charge plans.

Second charge

UTB’s limited edition near prime second charge product is for customers with historic unsecured missed payments providing that the debts concerned are consolidated in the new loan.

The lender is removing all caps on the adverse unsecured credit available on its second charge, one and two status products.

“We will now ignore the payment profile on all unsecured credit items entirely, providing they are being consolidated with our loan, a reasonable explanation is received during the underwriting process, and there is no recent pay day loans,” the lender said.

The status two product, which allows the greatest credit forbearance, will permit two mortgage arrears in the last 12 months with a maximum of two outstanding, and two defaults or county court judgements in the last year with no maximum number more than a year ago, providing the total is less than £15,000.

Webchat

The webchat facility has gone live on the broker portal.

This will allow any registered mortgage brokers to submit new enquiries to the bank online in real-time with immediate access to mandated underwriters.

The system also enables brokers to discuss existing cases and supply information to UTB which would usually be passed by phone or email.

Packaging process

The lender has urged brokers to separate documents when scanning them for underwriting, especially given many of its staff continue working from home.

However, where this is not possible it is urging brokers to scan documents in three groups – customer documents including the application, income documents, and property documents.

Sales director for property intermediaries Mike Walters (pictured) said the changes were part of the UTB’s summer-long programme.

“The increase of our maximum loan to value for self-employed applicants certainly caused a stir in the marketplace and we’re hoping that these latest criteria and technology enhancements will be equally well received,” he said.

“Our aim is to help our broker partners write more business and make it easier for them to process applications with UTB.”

He added: “Brokers are vital to the growth and success of the specialist mortgage market and we will do all we can to support them as they try to turn around a very challenging year.”

Loans of £250,000 will be accepted up to 75 per cent loan to value (LTV).

The lender will accept applications from furloughed employees who are going back to work on the same salary and hours as they were contracted before the pandemic, at up to 65 per cent LTV.

Borrowers who have taken payment holidays but are no longer freezing payments will also be considered.

At the same time, West One has improved its self-employed criteria by reducing its minimum time trading from three years to two years.

Buy-to-let

The lender has also opened-up its overall buy-to-let range. The range is available to landlords who have taken a payment holiday as long as normal payments have resumed and at least two payments have now been made.

Its maximum buy-to-let LTV has been increased from 70 per cent to 75 per cent LTV.

The maximum loan size has been raised from £750,000 to £1m.

All rates have been reduced by up to 65 basis points and now start at 3.59 per cent for standard product residential deals and 3.79 per cent on specialist products.

West One’s standard and specialist buy-to-let products are available to first-time and experienced landlords, where the applicant owns their own residential property.

Marie Grundy, sales director for West One (pictured), said: “These major enhancements to both our second charge residential and buy-to-let product ranges represent our most significant set of changes since the onset of lockdown.

“They also underline our commitment to the second-charge market at a time when products are in shorter supply.”

Specialist lenders have begun to re-enter the market as funders grow in confidence.

Last week, Fleet Mortgages cut rates across its standard, limited company and houses of multiple occupation (HMO) ranges after getting the green light from its financial backers.

Meanwhile, Foundation Home Loans has raised £350m in its latest securitisation deal.

The lender now has more than £1bn in warehouse funding in place to cover its lending targets over the next 12 months.