What happened in 2017 and what will 2018 bring, asks Simon Mules, commercial director at Optimum Credit
It’s a billion! The Finance and Leasing Association has reported that the market paid out over £1bn pounds of second charge mortgages in 2017. Optimum Credit paid out £225m of the above number, making us the most chosen home for second charge mortgages and a lender favoured by brokers when selecting the most appropriate outcomes for their customers.
So what will 2018 bring to the mortgage market? Let’s avoid Brexit as there really is nothing more than speculation to go on. (Other than to say that the housing market is relatively insulated compared to other areas of the economy, as most activity is driven domestically, London may be an exception).
Looking at the mortgage market, many commentators feel slightly more optimistic than they did 12 months ago. First-time buyers and home mover figures appear to be on the rise and the number of homeowners remortgaging has grown strongly and this trend looks set to continue in the medium term.
The buy-to-let market has faced a tough period, but there are certainly signs that a number of specialist lenders are finding a way to work positively with the new regulation and underwriting guidance. Other factors which influence the success of the mortgage market are normally attributed to the jobs market, which continues to perform strongly and has record low levels of unemployment, even if wage growth is weak. Those whose focus is not all lending led but collections focussed will be wary of interest rate rises although it appears the BoE are well aware of the need to control further increases in rates. When rates rise, which may happen in May 2018, the second charge market will normally see an increase in it’s lending as borrowers look to reorganise their finances. But what about the second charge market in 2018? Let us not forget it’s been less than a year from our switch to MCOB.
Brokers continue to get better at the advised sales process, whilst lenders understand more about the intricacies of affordability. When brokers and lenders align to meet the requirements of the FCA and their customers there is no more powerful combination at driving a market forward. Despite some headline makers stating otherwise, as competition has increased, fees charged by brokers have dropped significantly and the headline makers are using outliers as examples of poor practise. The growth shown in the second charge market in 2017 will show further growth in 2018, estimated between 20%-25%, as brokers recognise the benefits and ease of a second charge mortgage. The biggest growth in second charge mortgages in 2017 has come from first mortgage brokers. The FCA clearly recognise that obtaining both a first and second mortgage means that the customer undergoes a far more robust advice process compared to when they obtain unsecured finance. Debt consolidation is by far the biggest reason for a second charge mortgage; the level of unsecured debt, be it a loan, overdraft or credit card, will have to be tackled if the economy is to remain healthy. If first mortgage brokers carry out a thorough review of their customers financial position at the time of their remortgage enquiry, they will be able to consider whether it is appropriate to consolidate unsecured credit into a Regulated Mortgage Contract and join their peers in recognising the benefits of a second charge loan.
A remortgage enquiry is also an opportunity to think second charge mortgage, which one is the most suitable is down to both your advised sales process and the needs of your customer, but please take time to review not just the secured element of your customer’s debt but also the unsecured element. With the possibility of a rate change in May 2018, what better time to review your customers’ circumstances? Almost 22,000 loans written in 2017 helps to show how many brokers thought it was the right option for their customers!
