The volume of second charge mortgage lending has risen sharply, and now stands at its highest level for five years.
Data from broker Enterprise Finance, which publishes the Secured Loan Index, show that £75.5 million worth of second charge mortgages (sometimes known as secured loans) were taken out in March 2015. This represents an increase of 13% on the £66.4 million figure recorded in February.
The annual total for the 12 months to March 31 2015 rose by 19% to £799 million.
The average size of loan was £61,347 in March, a rise of 14% since January and a 3% rise on the figure from March 2014.
The majority of borrowers (54%) take out their second mortgage to fund home improvements, while significant numbers continue to take out these loans in order to consolidate other debt.
Harry Landy, a director of Enterprise Finance, said of the figures:
“March’s secured lending activity represents the market shifting up a gear after a solid start to 2015 and shows that demand for consumer credit remains keen.
“Monthly and annual improvements of almost 14 per cent is further evidence that public attitudes to borrowing continue to improve as the economy recuperates to something resembling a clean bill of health.”
The market for these types of loans was badly hit by the credit crunch of the late 2000s, before which there was a highly competitive market and numerous lenders and brokers marketing these loans via television advertising.
Mr Landy does not expect market growth to be significantly affected by the forthcoming introduction of new regulation. However, lenders, brokers and other firms who deal with second charge mortgages need to ensure they are prepared for the introduction of new rules in March 2016.
From March 21 2016, the UK is required to comply with the requirements of the European Union’s Mortgage Credit Directive. This means that the UK regulator, the Financial Conduct Authority (FCA), will force second charge mortgage firms to abide by rules similar to those applying to first charge mortgage firms (the Mortgage Conduct of Business, or MCOBS, rules), rather than those which apply to consumer credit firms (the Consumer Credit, or CONC, rules). Firms will be subject to new requirements such as:
• Carrying out comprehensive checks of current and future affordability, including whether the payments would be affordable if interest rates rose
• Disclosing certain information to the client, both pre-sale and post-sale
• The need for advisers to hold a mortgage advice qualification such as the Mortgage Advice Qualification or the Certificate in Mortgage Advice and Practice
• Providing more comprehensive data to the FCA via regulatory returns
Firms who offer secured loans can now apply to the FCA for regulated mortgage permissions.
Christopher Woolard, the FCA’s director of policy, risk and research, spoke of the need for additional regulation of this market by saying:
“We recognise that second charge mortgages are beneficial for some customers but we are concerned that consumers can be put at risk by poor sales practices and ineffective affordability assessments. Given the risk of consumer detriment, we want to embed good practice and we believe that applying our mortgage rules is the best way to do this.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.