Second-charge mortgage lenders have been battling it out with their product offerings in recent months but are they hitting the spot when it comes to what brokers need and are seeing demand for?
An increase in competition over the past few years and a new regulator have both resulted in a shift in lenders’ product offerings and attitudes. The onset of the Financial Conduct Authority’s regulation has meant that lenders are becoming more focused on what products best suit customers’ needs. New lenders and more funding have also meant lenders have become more competitive with their pricing and fees over the last twelve months.
Steve Walker, managing director of Promise Solutions, says recent product innovation from lenders has mainly consisted of lenders tweaking around the edges of their criteria to gain market advantage.
He says: “There seems to have been a realisation that brokers must offer products which they can demonstrate are most suitable to their clients. So rates, lender fees and early repayment charges have become more important considerations where lenders can differentiate themselves.”
One of the most welcome moves from lenders over the last few years has been the increase in fixed rate options for borrowers.
Danny Waters, chief executive officer of Enterprise Finance, says: “You only have to cast your minds back a few years to the depths of the recession to remember a second-charge market that was a shadow of what it is today; with only a handful of lenders offering restrictive products.
“Fast forward to today and we have a healthy sector with far greater provider choice and attractive rates. Interest rates of under 5% were virtually unthinkable a few years back.
“We have also seen welcome innovation and flexibility in terms of lenders offering large loans and buy-to-let products aimed at property investors.
“But perhaps the biggest shift has been something the mainstream market takes almost for granted – fixed rates. Although the larger second charge players such as Shawbrook and Blemain have had fixed rate products in their suite for some time, a number of smaller providers have recently added them to their arsenal too.”
Walker agrees and says: “The fixed rate market has become very competitive and these products should receive more attention as brokers change their model to give advice.”
Barney Drake, operations director at Y3S Group, says lenders’ product ranges may be more diverse than ever before but this means nothing to brokers without good service as well.
But he says: “I believe that constant reductions in rate and lender fee is not healthy for the market and therefore focus should be on refining service standards, which are currently varied across the market.
“Great service should never be seen to be replaced with technology. People like dealing with people and lenders that focus on this as a priority I believe will be the mainstream lenders. Even if you have the best rates in the market but deliver mediocre service, you will never be a market leader in terms of market share.”
What is Needed?
Lenders may have sharpened up their product offerings since the credit crunch but what would brokers still like to see from lenders in terms of product innovation?
Bradley Moore, director of second-charge loans at Brightstar Financial, says he would be keen to see lenders increase their BTL offerings.
“The second-charge market continues to grow, with options for borrowers at the present time as high as they have been for as long as I can remember,” he says. “Rates continue to be driven down as competition within the sector increases. The market is still heavily geared towards owner-occupied residential products and I would be keen to see an increase in the number of BTL products available.
“As a broker to broker business we a lot of enquiries for BTL, be it re-mortgage or for second charge, and I think there is definitely room for the options available to increase in this space.”
Walker agrees and says: “There is still room for more competition in the buy-to-let space and we expect to see rates reduce further.”
Alistair Ewing, director at Blimey Loans, believes the second-charge market could step in to fill a gap being left by first-charge lenders when it comes to interest-only customers.
He says: “We are seeing more and more clients with mortgages on a part repayment and part interest only basis, needing a solution to redeem the interest only element. I don’t think the mortgage market is doing enough to help older clients find suitable lending solutions. As the UK population continues to live longer, traditional lending into retirement will leave an increasing number of clients with interest only-mortgages that they simply won’t be able to repay unless they can extend the mortgage term substantially and convert the balance to repayment.
“Therefore it would be good to see some product innovation specifically aimed at clients in the 70 plus age bracket.”
As well as having access to products with lower fixed fees, Tony Salentino, director at Complete FS would like to see lenders looking at cap and collar type products.
He says: “We know there will be interest rate rises at some point and I think cap and collar loans would play well to the intermediary market to limit client exposure to an upward shift in rates and protect the client’s ability to pay.
He adds: “For us, one of the main changes has been the demand for larger loans. We have seen average loan sizes up from £28000 to £52000 in the past six months. The other major change is the increase in capital raising for BTL investment purposes.”
With a new regulator in town, brokers and lenders will be under increasing pressure to show that the products they are recommending to clients are the most suitable ones. This in some ways will mean that those lenders who are offering the most competitive rates will dominate the market. For those that are unable to match other lenders in terms of rates they may need to think outside of the box and focus on some of the areas where brokers feel there is demand, such as for older clients or in the BTL space, meaning the next twelve months should result in some interesting innovations from lenders.