2013 has been a year of new beginnings for the secured loan sector – new lenders, new criteria and a soon-to-be new regulator.
There was one headline that was recurring over the last twelve months: ‘record month for secured loans’ – with brokers experiencing deja vu as the sector repeatedly matched lending volumes not seen since 2009.
The record lending has in part been attributed to the continuation of a low Bank of England base rate, putting the secured loan market in prime position to pick up on business from those looking to remortgage but not wanting to disturb their existing low mortgage rate.
This, coupled with new lenders entering the market and existing ones making some major enhancements to their product offerings has meant secured loans have been firmly on the news agenda in 2013 for all of the right reasons.
Overshadowing the markets’ success however is the ongoing issue of regulation and the transfer of regulator from the Office of Fair Trading to the Financial Conduct Authority, which will take place on 1 April 2014. Some details of the new regime started to manifest during the year but in many ways the sector is still in limbo regarding what the final rules will entail.
However, the success experienced in the market over the last twelve months does not show any signs of slowing down into 2014, with 2013 having acted as the perfect stepping stone to propel the sector even further during the year to come.
Nemo Personal Finance kick starts 2013 by launching a 5.59% deal – the lowest secured loan rate in the market.
As well as this, it introduces its first 90% loan-to-value (LTV) product since the advent of the credit crunch and increases its maximum loan size from £100,000 to £200,000. It hopes the changes will lead to significant growth in the second charge market over the next twelve months.
Matt Tristram, joint managing director of secured loan master broker, Loans Warehouse, says the lender has granted every secured loan broker’s New Year’s wish.
He says: “Even before the credit crunch when Carol Vorderman was telling people to consolidate their debts with Firstplus, rates weren’t this low.”
Meanwhile, figures from the Loan Warehouse’s Secured Loan Index reveal secured lending reached £352m in 2012 – a 23% annual increase on 2011’s total of £286m.
The 2012 figure exceeded forecasts made in September for an annual total of £286m.
There was more good news for the market in February, with Shawbrook Bank launching a 95% LTV deal.
The deal is designed for employed homeowners with loan sizes ranging from £3,000 to £25,000.
Maeve Ward, head of sales of secured lending at Shawbrook Bank, says the market has been crying out for such as product.
She says: “We were aware that some homeowners were being hindered by a lack of LTV lending options but this product will really open up the market to them.”
Shawbrook says it hopes the move will encourage other lenders to lower rates and increase LTV levels, prompting an increase in competition.
However, even before lenders’ criteria changes have time to filter through to the market, figures from February’s Secured Loan Index reveal secured loan lending set a post credit crunch record in January, with £30.1m lent to homeowners in the first month of 2013.
The previous high for January was four years ago, in 2009, when lending reached £53m.
Secured loan lending in January was 20.9% above the same month in 2012, making it the fifteenth month in a row that second charge borrowing climbed year-on-year.
Brokers welcome the return of a familiar face in March, with Prestige Finance launching its first set of products since being acquired by OneSavings Bank in September 2012.
Rates start at 6.75% up to 70% LTV for both employed and self-employed borrowers, with a maximum loan size of £60,000.
Andy Golding, group chief executive officer of OneSavings Bank, says it intends to become a competitive force in the secured loan market and offer larger loans to mortgage holders who are unable to remortgage without losing access to their current low tracker and fixed rates.
He says: “We see opportunities to supply high quality products to this underserved marketplace.”
Equifinance Plus also makes a foray into the market, launching in partnership with Promise Solutions.
The lender has schemes to accommodate mortgage arrears, defaults and CCJs within the previous six months, offering LTVs of up to 100%.
Shawbrook Bank continues its innovative streak in April, launching a second charge buy-to-let product. The product is designed to help customers raise finance against their residential investment property, with rates from 9.95%.
Ward says it is proud to be driving the secured loan market forward by providing the benchmark for ‘best in market’ rates.
She says: “We hope that this, along with our other recent market innovations will ensure that 2013 will be the best that the secured lending industry has seen in recent times.”
Prestige Finance remains true to its word and pilots a large loan product through Brightstar Financial, just a few months after launching.
The product is available up to £500,000 and has a rate of 7.5% for loans up to 65% LTV.
The increase in loan size follows similar moves by Shawbrook Bank in 2012 and Nemo at the start of 2013.
Bradley Moore, director at Brightstar, says Prestige wants to gauge demand for the product before taking it to the wider market.
He says: “Having piloted it for the last month and now had our first completion we know that this is a fantastic opportunity for clients and our broker partners alike.”
Lenders’ increases to their maximum loan sizes was starting to show in lending volumes and in April secured lending broke through the £40m barrier for the first time in three years, the Secured Loan Index reveals.
The data shows a 73% monthly, year-on-year increase and more than double the amount of lending in April 2011, bringing the final lending figure for April to £41,752,623 which marked the eighteenth consecutive monthly growth.
Sam Busfield, managing director of Loans Warehouse, says breaking the £40m barrier is a milestone and reaffirms the resurgence of the industry.
He says: “With the year-on-year monthly figures demonstrating sustained growth, everything is pointing towards 2013 being the real turning point.”
There was further evidence that secured loans were becoming part of the mainstream mortgage market in June, with analysis from Smart Money Loans showing secured loans were more likely to be agreed than remortgages.
When analysing its own business over the past six months, SML’s data shows that over 67% of its Decisions in Principles for secured loans were approved nationwide.
SML says the evidence demonstrates that the secured loan route offers a greater chance of success for clients looking to raise capital than a remortgage.
Paul Crewe, director at Smart Money Loans, says it is pretty clear from its experience that, properly presented, a secured loan is more likely to be agreed than a remortgage in today’s market.
He says: “This is yet more evidence that brokers need to consider the secured loan route with as much diligence as they do for a remortgage.”
The industry says goodbye to David Johnson, managing director of secured lending at Shawbrook Bank and a pioneer in the secured and commercial lending industries, after he loses his battle with cancer.
Johnson is widely acknowledged as the creator of the specialist mortgage industry and had a long and glittering career which included the creation of i-Group, Money Partners, Commercial First and Link Loans as well as Shawbrook Bank.
He was also a passionate and successful racehorse owner, the pinnacle of which was winning the Grand National in 2008.
Ian Henderson, chief executive of Shawbrook Bank, says David was an inspiration to us all and that he played a pivotal role in making Shawbrook the success it is today.
He says: “David has touched so many lives on a personal level and across the worlds of finance and horse racing where he achieved so much success. He will be greatly missed by everyone who knew him and we all feel privileged to have known and worked with him.”
Meanwhile, the directors of Loans Warehouse – Sam Marshall and Matt Tristram, spread their wings in July and turn their hands to lending.
They team up with former investment banker Garry Monaghan to launch Clearly Loans – a second charge lender specialising in the mild adverse credit sector.
It will offer loans from £5,000 to £30,000 to customers in England, Scotland and Wales with mild adverse credit up to 85% LTV.
Mortgage Introducer also reveals in July that Sam Marshall, the founder and commercial director of second charge lender Nemo Personal Finance, has quit Nemo and the Principality Group.
Marshall, who has been a director at Nemo since its inception in 2004, will be placed on a period of garden leave and will no longer be working from the Nemo premises.
Mortgage introducer reports that Marshall has decided to leave to pursue business opportunities elsewhere and it is not known if Marshall will remain in the secured loan market at this time.
As the second charge and mainstream mortgage markets struggle with a shortage of surveyors, Prestige Finance introduces automated valuation models for loans and drive-by valuations on loans up to £50,000.
The AVMs are provided by Hometrack and as well as a maximum LTV of £50,000 will also be available up to 50% LTV. The drive-by valuations have the same loan cap and are available up to 70 per cent LTV.
The market’s mind also started to turn towards regulation in the summer months, with Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and the Association of Finance Brokers, warning that the FCA will be more draconian than the OFT when it takes over regulation of the industry.
He says: “All of the people in the second charge market that think they understand regulation are going to be confronted by the new regulator – the FCA, which is much more draconian than the FSA was back in 2004.
He adds: “Some will be ready for it, for example, the larger lenders that have got first businesses alongside their second, and some of the bigger broker firms get it, but some of the smaller ones – the one man bands – they are going to be in a very different place.”
And Andrea Kinnear, head of communications at the Finance and Leasing Association, says the main challenge remains the scale of the change and the breakneck speed of the timetable.
She says: “This is as much an issue for the new regulator as it is for the industry. The FCA will need to deal with nearly 40,000 new regulated companies from April 2014 and process around 100,000 new approved persons applications.”
Sinclair says one of the biggest changes for second mortgage brokers will be the need to document everything they are doing, keep proper minutes at meetings and evidence why they chose one product over another.
Loan providers Amigo Loans successfully defends its television advert after complaints are made to the Advertising Standards Agency over misleading statements.
A voice over on the advert stated: “Back in the good old days, if you needed a loan, the bank manager would often ask someone who knew you to guarantee it. Simple.”
Accompanying on-screen text stated: “Borrow up to £5,000 over one to five years. You must be over 18, not bankrupt and able to afford repayments. Guarantor required. Subject to status. Representative 49.9% APR (Variable).”
The voice over stated that Amigo Loans does not require a credit score as a guarantor must be in place in order to have a loan approved.
This prompted six viewers to challenge whether the ad misleadingly implied no credit checks were carried out because they understood the guarantor’s credit file would be checked.
And three viewers also challenged whether the ad was misleading because it failed to make clear the potential financial implications of being a guarantor.
However Amigo loans said the advert was addressed to the borrower and did not detail the criteria for acceptance of a guarantor.
It said the ad was intended to communicate that lending decisions were based on the borrower’s and guarantor’s ability to repay rather than a computer generated credit score.
And the on-screen text made clear that applicants must not be bankrupt and that the loan was subject to status. The ASA concluded that the ad was not likely to mislead.
Meanwhile, the industry is given a boost in September when well-known mortgage figure Michael Coogan joins Loans Warehouse as a strategic adviser. Coogan was director general of the Council of Mortgage Lenders between 1996 and 2011.
Another month and another new entrant into the market, with Firmus Secured Loans becoming the latest lender to enter the sector – with products exclusively available through Loans Warehouse.
Firmus is headed up by chief operating officer Zena Campbell, who was previously head of sales for Swift Advances.
October also saw the FCA publish its latest proposals for the regulation of consumer credit.
The paper – CP13/10 ‘Detailed proposals for the FCA regime for consumer credit’, which estimates that the transfer of regulation from the OFT to the FCA in April 2014 will cost the industry a one-off cost of between £1.1m and £3.7m, with lenders paying an additional £1m in costs every year.
Sinclair says he is not surprised at the lack of information in the document but hopes to have some detail about the new regime for secured loan firms by the middle of next year and he anticipates the conduct rules will be in place by the end of 2015.
Meanwhile, Blemain Group calls on the property industry to come together and solve the problem of rapidly worsening surveyor availability.
It says as well as the inconvenience caused to the customer when the survey is cancelled at short notice, a delay in receiving the valuation report can cause time sensitive checks and documents to expire and if the funds are for a deposit for another purchase this may fall through.
Tracey Bailey, head of residential underwriting at Blemain Group, says when surveys are delayed there’s an increased chance of the loan application not proceeding and in some instances the series of chain events involved in the transaction collapsing entirely.
She says: “The whole industry needs to play an active role. Insurers need to support surveyors in providing affordable cover as necessary.
“Equally lenders like Blemain Group need to play their part ensuring they participate in essential engagement and education activities to help people realise how the situation is impacting the industry as a whole.”
Second charge lending continued to rocket in October – topping £50m, as lending increased by 22%, the latest Secured Loan Index reveals.
The number of second charge mortgage repossessions in the third quarter of 2013 was also down to 144, 11.7% lower than in the same quarter in 2012, according to the Finance & Leasing Association.
Matt Tristram, co-founder and director of Loans Warehouse & Clearly Loans, says: “The last few weeks have seen some encouraging headlines; the drop in the rate of headline inflation to 2.2%; the Land Registry announced annual house price growth of 3.4%; and mortgage approvals are at their highest levels since February 2008.
He says: “But, for me, the most telling figure is that second charge mortgage possessions fell 11.7% against the same quarter in 2012.
“I don’t think I’m speaking prematurely when I say the worst of the credit crunch is behind us in the second charge market, but continued growth must be sustainable.”
There was an early Christmas present for brokers in December with Precise Mortgages launching into secured loans, with a range of lifetime trackers and fixes at rates starting from 5.45%.
The range of prime and near prime plans are available for loans up to £1,000,000.
Mortgage Introducer also reports that United Trust Bank is considering launching a second charge mortgage range.
Harley Kagan, managing director of United Trust Bank, says: “United Trust Bank has had another successful year and our ambition is to keep working with the intermediary market and grow the business.
“We continually explore options for extending the range of products suitable for the intermediary market and one of those is the potential to offer second charge loans. It is a service which would complement our existing product range.”
Aldermore also reveals that it will launch its secured loan range for prime residential borrowers in quarter two of 2014, alongside its bridging range, in a bid to develop a full banking proposition.
Meanwhile, a Mortgage Introducer round-table event reports that brokers and lenders responsible for giving advice on secured loans will need to become CeMAP qualified following the regulation of the sector.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and the Association of Finance Brokers, says: “When the secured loan market becomes fully regulated becoming authorised and passing exams will be key. Brokers and lenders operating in this market need to think now about how they will put in place a supervisory framework in place for CeMAP qualified advisers.”
The last twelve months have proved to be a transition for the secured loan industry, with new entrants and brokers seeing the potential the market has to offer. 2014 looks set to be more of a tricky one though, as the regulation of the sector is handed over to the FCA. Although it is unlikely much will change on April 1, over time regulation will make it more costly and time consuming to do business.
By this time next year the industry should have a clear picture as to where it stands regarding its conduct of business rules and how the European Mortgage Directive will impact the sector. There is also a risk the sector could suffer if interest rates increase and remortgaging becomes more competitive when pitched against secured loans.
But with the sector starting the new year from a strong footing there is no reason why 2014 can’t be another record breaker.