Can Secured Loans Gain Traction?
3 minute read
Much has changed in the secured lending market of late which could bring plenty of opportunities for second charge finance borrowers and lenders in the coming months.
The EU’s Mortgage Credit Directive
The first shift in the market was the implementation of the EU’s Mortgage Credit Directive (MCD) in March, which had the effect of shifting second charge lending from the FCA’s consumer credit regime to its mortgage regime. This means that to undertake second charge mortgage business, lenders, administrators and brokers have to be authorised and hold the correct permissions. Perhaps more importantly, the new regulation now means second charge products are treated in a similar way to mortgages, allowing advisers to arrange them directly with their clients, effectively eliminating the need for the larger master brokers. The result is that the fees associated with second charge secured loans should fall, making this lending stream more attractive to borrowers.
The Brexit Result
The second event to impact the secured lending market was the UK’s decision to leave the EU back in June. There has been some indication that the uncertainty resulting from the Brexit decision has led borrowers to delay major investment decisions, such as buying or selling a house. However, borrowers are continuing to need secured finance for home improvements and debt consolidation, which is the bread and butter of the second charge loan sector. With the housing market remaining steady post-Brexit, second charge lenders are seeing an increase in the number of people choosing to upgrade their homes. Rather than selling their homes at a time when house price growth is faltering, many are looking to finance improvements through second charge secured loans. The high level of uncertainty induced by Brexit is also increasing the demand for second charge loans, with borrowers encouraged to consolidate their debts to make payments more manageable. Many consumers are also on the lookout for products that offer a lower rate of interest than their credit cards, and given the record low interest rates, a second charge loan could be the answer.
The Rise in Secured Lending
While the level of monthly lending fell from February to April this year, gross annual second charge lending surged. For the 12 months to April 2016, total second charge lending was at £886million, representing a 29% rise on the previous year. There was also an increase in the size of the average second charge secured loan, with typical loan sizes at £60,000, having risen by 14% in the four months to April. This suggests second charge loans are now being used to fund longer term, more substantial projects, and this looks like a trend that is set to continue. Are you looking for a way to raise funds to renovate an existing property? Or raise capital to place a deposit on a second home? Get in touch with our expert advisors to access a secured loan that’s tailored to meet your specific needs.