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.
Second charge mortgage lending grows 14 per cent
The number of agreements dipped month-on-month to 2,594 from 2,658 in October, according to the Finance & Leasing Association (FLA).
However, loans were overall worth more at £116m in November, from £114m in the previous month.
Loan value also increased by 17 per cent year-on-year.
In the three months to November, the value of new business stood at £338m up 16 per cent from the previous year.
Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association (FLA), said: “The second charge mortgage market reported a fifteenth consecutive month of double-digit new business volumes growth in November.
“The average value of second charge mortgages in November grew by three per cent compared with the same month in 2018 to £44,530.”
Consumer finance growth
Separate figures from the FLA showed consumer finance grew by two per cent in November.
Credit card and personal loans increased by two per cent compared with the same month in 2018, while retail store and online credit new business fell by one per cent.
At the same time, the consumer car finance market dropped by one per cent in November.
‘Not much substance’ to FCA’s unaffordable second charge lending claims – FLA
The trade body for second charge lenders said the FCA “did seem to not have any backup” for its statement that parts of the second charge market were designed to benefit from consumers going into arrears.
In its business plan published in April, the FCA said: “We are concerned that the business models of some retail lending products, including some subprime credit and second charge mortgage products, are designed to benefit from consumers not repaying their debts.
“For example, firms may make profits from consumers who do not or cannot repay in full and on time.
“We will carry out work to identify these business models and the consequences for consumers and use our findings to identify what action we may need to take,” it added.
‘Not much substance’
This statement took many in the second charge market by surprise at the time.
Speaking today, FLA director general Stephen Sklaroff (pictured) said the trade body had protested it and the FCA had not produced evidence for its concerns.
As a result, he said the FCA removed reference to the second charge market from a page on its website related to ongoing work in consumer credit markets.
The page in question was originally published on 20 July and then updated on 26 July when the second charge reference was removed, the FLA stated.
“There was a very strange assertion in the FCA business plan which we challenged vigorously and in consequence the wording it used about the second charge market was removed from its website as there wasn’t much substance to what it said,” Sklaroff said.
“I think it was accidental wording. It were talking about markets where it might have concerns. No information was forthcoming and so it removed the wording.”
He added: “Its one of those things where everyone we asked didn’t see that [in the market].
“As far as I’m aware there are no particular concerns in that market. The FCA doesn’t seem to have any backup for its statement.”
However, the statement still remains on page 30 in the FCA’s business plan where it was originally published.
When contacted by Mortgage Solutions, the regulator did not deny the wording had been removed and could not confirm what its policy was in the area.
An FCA spokeswoman added that any changes to the business plan were usually announced.
Seconds ‘in better place today’
Sklaroff was speaking ahead of his departure from the FLA at the end of the week having spent 12 years at the trade body.
He noted the second charge market had gone through two rounds of regulatory changes in his time but warned the biggest challenge was not the scale of change, but how fast it was happening.
“It’s the pace of change. Since 2014 we haven’t seen a month or sometimes even a week when there hasn’t been a new consultation or proposal affecting our markets,” he said.
“Particularly for smaller and medium sized lenders the pace of continued regulatory change is challenging because it’s a cost, and smaller firms are often less well set up to deal with those things,” he added.
However, overall Sklaroff said he believed that it was “in a better place today”, even if trading volumes were lower than its pre-crisis peak.
“Looking at the agreements in place, they were worth £12bn pre-crisis but now they are up at £5bn in 2018, and July was the highest new business month since 2008,” he said.
“There’s no reason to expect the current growth not to continue although the scale of that growth will depend on economic circumstances.
“If I was looking at those numbers from the outside I would see this is a growing market, it’s adapted well to new regulation so it’s quite attractive,” he added.
Second charge achieves first consecutive £100m lending months in more than a decade
The Finance and Leasing Association (FLA) confirmed the last time more than £100m of second charge lending occurred in consecutive months was in 2008.
The sector also recorded its eighth consecutive month of double-digit growth in the number of new agreements completed, according to FLA data.
Lending value increased by 23 per cent in April compared to the same month last year, with £102m worth of loans completed.
The figure of 2,206 agreements made in April was also up 24 per cent on April 2018.
Both figures were slightly down on the 2,392 deals worth £108m completed in March 2019, but the results continue the strong start to the year and improved performance over the last year.
In the last 12 months 25,243 second charge loans have been taken out worth £1.135bn – up 11 per cent and 14 per cent respectively on the 12 months to April 2018.
And in the last three months 6,769 deals have been completed for £309m in lending, up 23 per cent and 26 per cent on the three months to April 2018.
Fiona Hoyle, head of consumer and mortgage finance at the Finance & Leasing Association (FLA), said: “In April, the second charge mortgage market reported its eighth consecutive month of double-digit new business growth.
“This is a great performance for what is an increasingly popular product.”
Second charge sees busiest month since 2008 as strong 2019 continues
According to data from the Finance and Leasing Association (FLA) 2,392 new second charge loans were taken out in March, the most since October 2008.
This was up 31 per cent on March last year and a similar uptick was seen in the value of new business, as that rose 25 per cent to hit £108m for the month.
The data rounds-up a strong first three months of 2019 for the second charge market with January new deals up 18 per cent and the value of business up 12 per cent.
February witnessed even stronger growth, with new agreements rising by 24 per cent and the value of these growing 20 per cent compared to the same month last year.
Overall, January to March saw 6,500 deals completed worth £292m, up 25 per cent and 19 per cent respectively on the same period in 2018.
The trend also shows through in the annual figures with 24,812 agreements, up 13 per cent, worth £1.116bn, up nine per cent, completed in the 12 months to March.
FLA head of consumer and mortgage finance Fiona Hoyle (pictured) said: “In March, the second charge mortgage market reported its highest level of monthly new business volumes since October 2008.
“It is a competitive and innovative market for consumers, with a growing number of broker partners.”
Last month, The Financial Conduct Authority (FCA) said it would be investigating parts of the second charge and subprime credit markets as it believes they are designed to benefit from consumers going into arrears.
In the announcement the FCA highlighted its data monitoring consumers in arrears, numbers on standard variable rates and complaints, but has yet to publish evidence of this.
Strong November for second charge market – FLA
Figures from the Finance and Leasing Association (FLA) for the three months and full year to November were also up compared to the same respective periods in 2017.
In total 2,282 second charge deals were completed in November worth £99m.
This took the annual total to 23,325 agreements worth £1.06bn – up six per cent and four per cent respectively.
Meanwhile the three months of September to November were up 17% on value of new business and number of agreements compared to the same period in 2017.
FLA head of consumer and mortgage finance Fiona Hoyle was positive about the continued performance of the sector over the last 12 months.
“The market has reported a relatively strong performance in recent months following a steady first half of 2018,” she said.
“The second charge mortgage market is likely to report solid single-digit new business volumes growth in 2018 overall.”
Modest consumer growth
Other figures from the FLA showed that consumer credit, personal loans and car finance also nudged up during November
Credit card and personal loan new business together grew by 1% compared with November 2017, while retail store and online credit new business increased by 2%.
FLA head of research and chief economist Geraldine Kilkelly added: “The consumer finance market reported modest growth in November reflecting subdued consumer confidence in the run up to Christmas.
“The latest figures suggest single-digit new business growth in 2018 as a whole.”