2014 will go down in the history books as the year in which the second charge industry shed its old rulebook and regulator and started on the path towards becoming part of the mainstream mortgage market.
The last year has been a defining one for the second charge market, it has witnessed not just a new regulator but new lenders, new funding lines and record lending volumes.
The big news of the year though has undoubtedly been the release of the Financial Conduct Authority’s consultation paper and its proposed rules for the sector.
The new proposals were good news for most firms but for others they were a wake-up call, forcing some firms to re-think their business models and overall presence in the market.
Aside from the new rules, there was still plenty to report on in 2014. Loan Introducer runs down some of the highs and the lows of 2014.
The New Year started on a high with figures from Loan Warehouse’s Secured Loan Index revealing lending in December 2013 was up 66.5% on December 2012, with total lending of £40,871,398.
Overall the figures showed secured lending reached nearly half a billion in 2013 with £493,279,637 lent.
The index started the way it would go on with it continuing to report monthly increases in lending over the next 12 month.
Brokers were already anticipating back in February what effect the new rules would have on the market.
A survey from Loans Engine in February revealed that 88% of brokers were expecting to write more second charge business when consumer credit regulation came under the FCA.
The survey also revealed that 25% of brokers had already seen their level of secured loan business increase by 50% compared to a year ago.
Mortgage Introducer exclusively revealed in February that secured loan lender Firmus had put a hold on lending for the next three months as it carried out a review of its lending criteria.
The non-conforming lender, which launched in September 2013 said the review would last around three months.
As brokers and lenders geared up for the FCA to formally take over the regulation of the sector on April 1, the debate over what license brokers needed to apply for started to emerge.
There was some confusion over which interim category of consumer credit license brokers needed to obtain, with some brokers applying for Category E – the debt counselling license and others not.
Some firms, which were unaware of the need for the license quickly submitted their applications to the FCA at the last minute as the industry rallied around to ensure their colleagues had the necessary licenses in place to carry on trading come April 1.
With ironic timing April Fool’s Day marked the day the FCA took over the regulation of the consumer credit industry from the Office of Fair Trading. In reality though little changed for the second charge market. Aside from brokers and lenders having to apply for interim permission, the market would have to wait until September for the proposed rules for their sector to be published.
April also saw Nemo Personal Finance announce that its managing director Phil Jones was stepping down after nine years at the lender.
Guy Thomas, who had been working as Principality’s chief operating officer for the past 18 months stepped in temporarily to fill the role.
Meanwhile, there was some good news from Masthaven Secured Loans, which announced that it had secured its first bank funding line through Royal Bank of Scotland.
Figures from the Finance and Leasing Association in May revealed there had been a substantial drop in repossessions.
Second charge mortgage repossessions fell by 43.4% year-on-year, the figures revealed.
There were just 128 properties taken into possession by FLA second charge mortgage providers in the first quarter of 2014, down from 226 in Q1 2013 –indicating that the need for repossessing was diminishing.
May also saw the launch of Colonial Second Charge Loans – a rebranding of the firm Colonial Secured Loans. Its managing director Mark Fry said the new name was in light of the new regulations and the FCA’s consultation papers referring to secured loans as second charges.
Shawbrook Bank was celebrating in June after revealing a 2013 pre-tax profit of £16.8m.
The results marked a significant improvement from 2012 when the lender reported an accounting loss of £7.1m.
The results revealed the lender lent £1.4bn in 2013, with its secured lending rising by 81% to £295m.
Loan Introducer sounded a warning in June that a growing army of internet scammers had been targeting the secured loan industry.
During May the FCA had issued a warning to consumers about dealing with a secured loan brokerage calling itself ‘Loan.co.uk Limited Group’ which was acting as a clone of ‘Loan.co.uk Limited.’
The FCA said fraudsters were using the details of firms registered to carry out consumer credit activities to try to convince people that they work for a genuine, registered firm.
Aaron Noone, head of operations at Loan.co.uk, told Loan Introducer that the company first suspected something was wrong when it started to receive calls from members of the public saying they had made their first loan installment but hadn’t received the loan.
July saw Robert Owen leave his role as chief executive of Central Trust after just 18 months in the job.
Andrew Turner, chairman of parent firm CT Capital, thanked Owen for his ‘valuable’ contribution to the business and wished him well for the future.
Secured lender Optimum Credit also revealed in July that it had received a £20m three year revolving credit facility from RBS.
Following the new funding, the lender announced that former Nemo Personal Finance founder and commercial director Sam Marshall and Ian Praed would be joining the firm as chief executive office and chief operations officer.
There was some surprise news in August with Freedom Finance revealing that it had been acquired by the Target Group.
The UK’s largest personal loan broker was bought by the SOF Annex Fund as part of the strategic growth plans for its portfolio company – Target.
The firm currently has more than £10bn of loans and savings running on its platform.
September saw the FCA’s consultation paper land.
The FCA put forward its plans to bring seconds into the first-charge mortgage market regime from March 2016.
Some of the main changes for sector under the proposed rules included the need for all sales to be carried out on an advised basis, meaning all staff must have CeMap.
The new rules also meant brokers and lenders will have to carry out more in-depth affordability checks and verify income.
In addition to this, the FCA is proposing that second charge lenders stress test against the first charge loan as well.
Under the European Mortgage Credit Directive, firms will also be required to use the European Standardised Information Sheet (ESIS) when providing product information.
For some there were few surprises contained but for others the regulator’s plans came as a shock.
In other news, later life specialist the Key Group revealed in September that it had acquired secured loans packager V Loans for an undisclosed sum.
October saw another high profile departure in the shape of Paul Brett, who left Masthaven Secured Loans.
Brett worked as director of sales at the firm having joined just over a year ago from personal asset lender Borro.
There was more recruitment news in October with Nemo Personal Finance announcing that it had appointed Alan Jarman as its new CEO.
Jarman, who joined Principality Building Society as group chief operating officer in the July, would also take on the role of CEO at its subsidiary company Nemo.
The big news in October however was that Paragon Bank was to start offering second charge loans once again, five years after its parent group stopped offering secured loans.
The new product range was aimed at prime borrowers through a limited panel of over 40 brokers.
It offered loans between £10,000 and £100,000, with an LTV range of between 60 and 85%.
By November, the industry had time to digest the FCA’s proposals and firms were starting to worry about the cost of introducing the new rules.
One detail of the paper which was being debated was the regulator’s estimate that the new affordability measures will result in a £100m loss in business for the sector.
Loan Introducer reported that some commentators were warning that this is a conservative estimate and the actual cost will be higher, others however were claiming the figure was irrelevant given the amount of business that is likely to be generated from other areas of the proposals – such as the need for mortgage brokers to make customers aware of second charges.
December has seen the first of many new acquisitions that are expected to take place in the run-up to the final rules being implemented.
Y3S acquired a 50% stake in packager Chaseblue Loans. The acquisition forms part of a buy and build structure.
The year ended with the news that Simon Stern would be leaving Prestige Finance on the 16 of January next year, after 30 years with the company.
The news that Stern is to leave the company will no doubt come as a shock to some of his colleagues and brokers who have worked with him over the years.
2014 has had its fair share of ups and downs and 2015 looks set to be no different. The next twelve months will see FCA release its final rules for the sector which will undoubtedly result in more consolidation of firms. It will also be interesting to see how lenders adapt their practices and products over the coming months in anticipation of the new rules and whether this starts to have any impact on the record lending volumes the market has been experiencing.
Either way, 2015 does not look like it will be any less newsworthy than 2014.