In normal times (remember those?) I would prepare to write an article such as this by researching the latest market facts and figures, talking with some wonderful sector experts to understand the hot topics, and aiming to write something that the publication’s readership would find both interesting and informative.
But these are by no means normal times. And predicting what will happen next in the second charge market is challenging, to say the least.
So, with a distinct lack of crystal ball, here is my look at the second charge mortgage market. First, let’s consider why we are where we are.
Plummeting transactions
Intermediaries will be more than aware that, as the pandemic hit in the spring and the country was put into lockdown, second charge mortgage transactions plummeted. Understandably, many providers paused lending or restricted their product ranges, distributors’ pipelines shrank, and intermediaries struggled to support their clients with second charge mortgage options.
The data reflects this: the latest report from the Finance & Leasing Association revealed a 71 per cent decrease in second charge new-business levels in June 2020 compared to the same period the year before. Just £27m of second charge funding was lent out.
The FLA’s head of research and chief economist, Geraldine Kilkelly, points out that the slow recovery seen in second charge mortgage new business echoes that observed in the general economy.
With both the property and economic landscapes in flux, the second charge market had all but vanished, leaving all of us wondering when, and in what form, it would return.
Positive Lending has a ‘whole-of-market lender panel’ for second charge mortgages but, it must be said, during the spring and summer our panel shrank significantly. We had to quickly form a plan to reassign and manage the cases in our customer pipeline.
Like the majority, Positive’s offices closed and within a matter of days we were working from home. Thanks to technology, our fantastic second charge advisers and underwriting team were able to join forces, reviewing every second charge case in our pipeline. We contacted each broker and their clients to explain what the unprecedented situation meant for their individual mortgage applications.
We are thankful that most lenders kept us well updated, explaining their lending parameters and their appetite to lend. Although it was challenging to manage our enquiry pipeline, we understood why lenders needed to be cautious. It was a frustrating and worrying time for our broker partners, but they remained overwhelmingly supportive.
Planning a comeback
At the time of writing, there are many reasons to be hopeful. Lenders are launching new products each week, featuring higher LTVs, lower rates and less restrictive lending criteria.
At Positive Lending, we’ve seen exciting product innovation in this sector. Lenders are re-emerging with new product ranges, such as UTB and Optimum, which are offering attractive high-LTV propositions, and Shawbrook, which has just lowered rates.
The opinion here is that there is a definite uptick in lender confidence, which in turn is opening up more opportunities for brokers and their clients. It’s now much easier to place a second charge mortgage case and find an attractive product option.
Swift reactions
The second charge sector is slowly returning to a more normal landscape. We are receiving a strong uplift in new enquiries and completions, although not to the same level as before the pandemic. Perhaps, with so much uncertainty in the world, and like much of society these days, seconds lending is in a ‘new normal’ for a while. There is slightly less activity and choice than before but some great options for second charge borrowers, nonetheless.
Some pundits predict that the market will return to 90 per cent of pre-Covid lending volumes by the fourth quarter of 2021. One thing is for sure: the sector and those working in it have proved their ability to react quickly and bounce back.
Anna Bennett, marketing director, Positive Lending
