Second charge lending surges 68 per cent in a year
Growth has rocketed by 67.88 per cent year-on-year to total £150.9m in May, industry figures from Loans Warehouse showed.
Month-on-month lending jumped by 7.47 per cent. There were 3,078 completions during the month which was a three per cent uptick on April.
Lending in the year to date has reached £834m, well over double the £389m by the same point last year.
The largest driver for loans was consolidation and home improvements.
May also saw an improvement in lender completions times, down from 22 to 15 days.
Recent data from the Finance and Leasing Association has also painted a picture of a booming second charge market.
Rising house prices have helped more people use their homes for second charge.
Higher interest rates mean a full remortgage can also be a less attractive option now than second charge.
Pepper Money’s second charge loan book breaches £1bn mark
The lender said it had originated £1.8bn of second charge mortgages in total and £800m worth of loans had already been redeemed.
It has also closed five securitisations under its Castell securitisation platform.
Pepper Money offers second charge mortgages between £5,000 and £1m on fixed, discounted and variable rate options. Repayment terms can range between three and 30 years.
Borrowers can access up to 100 per cent of the property’s value, minus the existing mortgage balance subject to a satisfactory valuation.
It launched a range of second charge mortgages in January this year following the completions of its integration with second charge specialist Optimum Credit.
Pepper Money bought Optimum Credit in 2018 and at the time it had a second charge loan book worth over £450m.
Matt Blake, treasurer at Pepper Money, said that Finance and Leasing Association’s figures for 2021 showed that second charge lending had totalled £1.1bn, therefore hitting the £1bn mark showed that the lender was an “important player Pepper Money is in this market”.
He added: “Throughout our lending we have maintained ultra-low levels of loans in default and repossessions, and the majority of lending continues to be for either home improvements or debt consolidation.
“With the ongoing cost of living squeeze that is motivating more customers to take a more proactive approach to managing their finances, we expect debt consolidation to be a big theme in the coming months, providing brokers with a good opportunity to help their clients take greater control of their monthly expenditure.”
February’s second charge mortgage sales highest in two years – FLA
The FLA reported a total value of £119m in new business in the month, with 2,660 new agreements made, the highest volume in two years.
The association reported that it has seen £1.192bn in new business in the 12 months between February 2021 and February 2022. This constitutes 27,624 new second charge agreements over the course of the year.
Between December 2021 and February 2022, second charge lending raked in £309m through 6,950 agreements, which was 60 per cent higher earnings and 50 per cent more agreements made than for the same period last year.
Fiona Hoyle, director of consumer and mortgage finance and inclusion at the FLA (pictured), said: “In February, the second charge mortgage market reported its highest monthly level of new business volumes for two years and has now returned to pre-pandemic levels of new business by both value and volume.
“As consumers face higher prices and pressure on disposable incomes, any customer worried about meeting payments should speak to their lender as soon as possible to find a solution.”
Second charge business shows ‘continued recovery’ in January ‒ FLA
According to figures from the Finance and Leasing Association (FLA), there were 2,116 new second charge mortgage agreements in January, which is 57 per cent up on the same period last year.
The report added that in the three months to January there had been 6,874 new second charge mortgage agreements and in the 12 months up to January there were 26,642 new second charge mortgage agreements.
The value of the new second charge mortgage business in January came to £91m, which is 56 per cent more than the same period last year.
In the three months to January the value of new second charge mortgage business was £305m, which was up 52 per cent from last year.
The report added that in the 12 months to January 2022 the value of new second charge mortgage business amounted to £1.14bn, up 62 per cent on the previous year.
Fiona Hoyle (pictured), FLA’s director of consumer and mortgage finance and inclusion, said: “The second charge mortgage market continued its recovery in January with further strong growth in new business volumes.
“This market helps consumers in a variety of ways, including home improvements, and will continue to do so as households face increasing pressure on disposable incomes over the coming months.”
Improvement on conversion, offer speed and completion needed for second charge growth – Tolfree
Speaking to Specialist Lending Solutions as part of the Get to Know Your British Specialist Lending Award Winner series, United Trust Bank’s mortgages director Buster Tolfree (pictured) explained that second charge market growth was currently largely led by home improvements and debt consolidation and said there was no evidence this would materially change in 2022.
Tolfree said that as a result, opportunities for growth under the current framework was dependent on consumer demand for home improvements and consolidate their debt.
He said: “I would say real growth opportunity greater than that possible through incremental increases in consumer demand, requires the market framework or operational processes and application journey to change more materially than it has to date.
“This means improving conversion, as well as speed to offer and completion, likely through enhanced digitalisation or streamlining of referencing and application data verification.”
Tolfree added that given UTB’s growth to date, it planned to expand its team, which combined the bank’s residential mortgage and second charge propositions, over the next few years to “reflect the continued growth of our business”.
He also said the second charge market had been “resilient”, despite being smaller than other specialist lending sectors.
Tolfree said the second charge market had consistently sat around £1bn in the few years before the pandemic, but during 2021 had seen greater monthly lending numbers than at any time during the last five years.
He added that it was likely that the Finance and Leasing Association would report monthly origination of over £140m in November and said these kinds of numbers had not been seen since pre-2008.
Tolfree said: “In my view, a key driver of this is the pent-up demand generated during the pandemic, combined with the increase in working from home driving up the desire for home improvements. What will be really interesting is whether this upward trend continues in 2022 or not.”
Challenges for the market
Tolfree said the biggest challenges looking ahead were the “great unknown”, pointing to the impact of the Omicron variant with its work from home directives and restrictions on social movements.
He said: “The difference, if not realisation this time, is that I think there is a greater feeling that this is likely to become a regular yearly winter occurrence for longer than we all hoped.
“The mid-term impact of this is unclear, but ripples to inflation, unemployment and a rising Bank of England are realities we face. For most of those aged under 30-35 this is something they have never seen before given how low interest rates have been since the Global Financial Crisis in 2008-12.”
Tolfree said whilst this may be “difficult for many” the specialist finance market was “innovative”, and every difficult period presented new opportunities.
Large jump in second charge mortgage activity ‒ FLA
According to the latest figures from the Finance & Leasing Association (FLA), there were 2,433 new second-charge deals agreed in July, an increase of 149 per cent on July last year.
This continues a trend, as in the three months leading up to July there were 6,396 agreements, an increase of 198 per cent on the same period in 2020.
The value of the new second-charge loans agreed in July was up by 153 per cent on the previous year at £101m, though again the trend is more pronounced on a quarterly basis. The new business agreed in the three months to July totals £279m, a jump of 217 per cent on the same quarter last year.
Fiona Hoyle, director of consumer and mortgage finance and inclusion at the FLA, noted that the market is seeing a “strong recovery” from the troubles of the pandemic, with the new business figure now at its highest level since February 2020.
She continued: “We expect to see further growth this year as the market returns to pre-pandemic levels of new business.”
Second charge continues rebound with 21 per cent bounce
According to data from trade body the Finance and Leasing Association (FLA), there were 1,717 second charge transactions completed worth £68m in October.
While this was up 21 per cent in value and number on September’s figures, this remained 35 per cent and 43 per cent respectively down on the same month last year.
And the impact of the prolonged recovery in the market is showing in the annual figures.
In the 12 months up to and including October there were 18,388 completions worth £800m, both totals were down by a third from the 12 months to October 2019.
Fiona Hoyle, head of consumer and mortgage finance at the FLA, (pictured) said: “Despite weaker consumer confidence, new business volumes in the second charge mortgage market continued to recover in October.
“In the ten months to October 2020, new business volumes in this market remained 41 per cent lower than in the same period in 2019.
“Lenders are continuing to do all they can to support customers during this challenging period. If customers are experiencing payment difficulties we encourage them to contact their lender as soon as possible.”
Households cautious about building up debt
Overall, consumer finance new business fell in October 2020 by 11 per cent compared with the same month in 2019 and decreased by 18 per cent in the ten months to October 2020.
Consumer car finance new business by value and retail store and online credit each grew in October by two per cent compared with the same month in 2019.
However, credit card and personal loan new business together fell by 20 per cent in October 2020 compared with the same month in 2019.
FLA chief economist and head of research Geraldine Kilkelly said: “Consumer confidence weakened as new restrictions were introduced in October to deal with the rise in coronavirus cases. This is reflected in weaker demand for consumer finance across most of the main products.
“The economic outlook has improved following the promised rollout of a vaccine before Christmas.
“Our latest research suggests that consumer credit in the UK is expected to grow by nine per cent in 2021, following a contraction of 22 per cent in 2020 as a whole. New lending on credit cards is expected to grow by only five per cent next year, with households more cautious about building up debt post-crisis.”
Trade bodies implore ‘urgent action’ to help non-bank lenders support recovery
In its latest statement, the Finance and Leasing Association (FLA) has emphasised that the sector will not be able to support the recovery without government or Bank of England help.
The non-bank sector has been especially hard hit during the coronavirus crisis as capital markets have almost completely closed down and lenders are denied access to the term funding support schemes, while also needing to grant payment holidays to their borrowers.
Last month a coalition of trade bodies, including the FLA, UK Finance and the Intermediary Mortgage Lenders Association (IMLA) presented a trio of schemes to Treasury and Bank of England officials.
The bodies said the schemes would be particularly targeted to support lenders offering payment holidays and other forbearance measures.
HM Treasury responded by saying it was continuing discussions with the sector and that it was “keen to understand the issues that non-bank lenders are experiencing”.
However, there has been no action yet.
In a statement issued today FLA director general Stephen Haddrill, highlighted that its lenders had been hit hard by the measures taken to deal with the coronavirus crisis.
There was a 20 per cent fall in new business in March while its members have received almost 1.2 million Covid-19 related requests for forbearance, with 75 granted.
“The industry is committed to supporting their customers during these exceptional times,” he said.
“Urgent action is needed – in days, not weeks – to deliver financial support to the non-bank lending sector to ensure that we maintain a financial services sector that is diverse, innovative and competitive.”
The FLA told Specialist Lending Solutions that without help they would not be able to support the economy as lockdown measures were eased.
“Non-bank lenders are supporting customers with unprecedented levels of forbearance, but with very little new business coming in due to the ongoing lockdown, these firms won’t be in a position to lend as we emerge from the current phase,” the spokesperson said.
“That is in no one’s interests. The industry needs a prompt decision on funding so that they can plan how to resume normal business.”
The Association of Short Term Lenders (ASTL) has also added its weight to the cause of specialist lenders.
In a letter to the Treasury, it highlighted that members would be needed to provide liquidity to fund the recovery and growth in the SME community as the economy is rebuilt.
“With this in mind, we would like to discuss with you how the broad approach to the current moratorium affects short-term mortgage lenders and, as we move forward, how provision can be made to re-enforce the ability of our members to advance new loans and provide SMEs with the liquidity they will need to rebuild their businesses,” it said.
Vic Jannels, CEO of the ASTL, added: “We have endeavoured to encourage HM Treasury that it really would help if we are able to engage in a collaborative approach, which would put public health first, protect homeowners and small businesses, and also acknowledge the vital role that the short-term mortgage lending community can play in the UK’s economic recovery.
“It is important that we work together on an effective and diverse financial response to the current situation in a way that protects consumers and supports businesses.”
Second charge lending falls to £93m in March
The industry still managed to complete 2,050 deals during the month worth £93m, but these totals were down by 14 per cent compared to the same month a year earlier, according to figures from the Finance and Leasing Association (FLA).
The fall did not impact annual lending totals too significantly. The 28,172 transactions worth £1.26bn in the 12 months to March remained 14 per cent higher than in the year to March 2019.
Fiona Hoyle, head of consumer and mortgage finance at the FLA said: “The disruption caused by the lockdown in March led to falls in second charge mortgage new business of 14 per cent by both value and volume compared with March 2019.
“New business volumes in Q1 2020 as a whole increased by two per cent compared with the same quarter in 2019.
“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.”
New business in the overall consumer finance space fell by 16 per cent in March 2020 compared with the same month in 2019, and contracted by four per cent in Q1 2020 as a whole.
Car finance was worst hit, down by 24 per cent in terms of transaction numbers to 3,750 in the month, and this dragged the running 12-month total down by one per cent to 36,840.
Capital markets ‘essentially closed’ to non-bank lenders – FLA
The trade body has urged government to take action to allow the industry to support its customers with new lending mechanisms and forbearance or arrears.
Non-bank lenders in the specialist property lending markets have been particularly badly hit with Together, Vida and Foundation already closed to new applications and others drastically cutting back.
Early on in the crisis Landbay co-founder and CEO John Goodall warned there would need to be some intervention for non-bank lenders.
Now the FLA, which represents the second charge sector along with wider consumer, asset and motor finance, is adding its voice, calling for government and the Bank of England to take “urgent action”.
‘Urgent help needed’
FLA director general Stephen Haddrill highlighted that those markets played a significant role in supporting businesses and households across all sectors of the economy.
“We have welcomed the financial support schemes that the government and Bank of England have put in place so far, but urgent action is now needed to ensure that non-bank lenders are able to continue to serve customers, both through new lending and forbearance.
“Non-bank lenders rely heavily on the capital markets and bank funding, which are essentially closed to them.
“Support needs to be provided to non-bank lenders to help them deal with the huge cashflow drain from forbearance, with Covid-related requests growing by more than 1,000 per cent in the week commencing 16 March, followed by a further 249 per cent increase the following week.
“This sector needs urgent government help to ensure it is still in a position to lend to individuals and businesses when the current market disruption ends, because without their input, the UK’s economic recovery will be much slower,” he added.
The FLA said its members provided almost £141bn of new business in the twelve months to February 2020, two per cent higher than in the same period in 2019, £46bn was provided by non-bank lenders.