Almost six years ago, when the Financial Services Authority was still the industry regulator and the Financial Conduct Authority and Prudential Regulation Authority were but a consideration for the as-yet-unpenned the Financial Services Act, a rather crucial announcement was made.
As he delivered what was to be his last Budget, beleaguered chancellor Alistair Darling announced plans to bring the secured lending sector under the FSA’s jurisdiction.
Darling told the House of Commons: “This will create a single regulator for residential mortgage lending, ensuring consistent standards of consumer protection across all mortgages and simplifying the regulatory environment for lenders.”
The news came after suggestions were made in the Mortgage Market Review that the regulator should take the reins for second charges from the Office of Fair Trading.
While no time frame was given, experts were predicting a wait of two years at least. That wait of course was much longer, not least because of a shake-up in regulation when the Financial Services Act 2012 came into effect, bringing with it a new regulatory framework that saw the FSA abolished and the creation of the FCA.
Regulatory power for the secured sector eventually changed hands in April 2014. It was a key moment for the industry but didn’t quite have the impact one might have expected given the roll-out approach taken by the regulator. Interim permission were put in place and it was announced that full regulation would not take effect until March 2016 – almost six years to the day that the suggestion was first made.
Now, as we approach the final countdown speculation and forecasts are rife as commentators try to envisage how the secured loan market will look in the post-regulation world. With just weeks to go experts in the sector have been busy prophesising about the impact the Mortgage Credit Directive will have and how intermediaries will take to seconds being positioned alongside their first charge cousins.
Amid the hard work and preparation firms are undertaking to get ready for MCD, Mortgage Introducer spoke to a selection to find out what they expect to see from not just the second charge but the loans industry as a whole in 2016.
Maeve Ward, sales and operations director at Shawbrook Bank is expecting steady growth in the market over the next 12 months but believes we’ll see the real impact of MCD regulation in 2017.
“My prediction for 2016 will be gradual growth for the second charge market, with significant growth in 2017 – as more and more brokers recognise the opportunity that the Mortgage Credit Directive (MCD) offers to grow their business,” she says. “New lender entrants and more product innovation will follow, as many branch out into niche markets, all leading to good customer outcomes.”
Jonathan Sealey, managing director at Hope Capital says 2016 could be a huge year for the bridging sector in particular with lending to top the £3billion mark.
“[I predict] bridging through the Association of Short-term Lenders to exceed £3billion,” he says. “While the Bank of England base rate remains low, as it appears it will, and consumer confidence is high, with more investors realising the benefits of utilising short term finance as a solution, the bridging sector is only likely to increase. However, as someone once said “only a fool predicts the future”, so perhaps it is prudent to call this a wish too.”
It’s a numbers game too for Harry Landy, sales director of Enterprise Finance. He expects the sector to hit a milestone lending figure in the next 12 months with market growth showing no signs of slowing down.
“In terms of a prediction for 2016, it’s pretty safe to say that the second charge market is set to become a £1bn-a-year industry, it’s just a case of when the milestone arrives,” he says. “There may be a bedding-in period in the spring as the sector adjusts to the new legislation, but people already au fait with the products are unlikely to be deterred. And once this phase is negotiated, there’s nothing to stop the second charge mortgage sector being bigger than it ever has been.”
Bradley Moore, Brightstar’s director of second charge loans, is predicting a year of change and innovation for the sector and has high hopes for what those changes will mean.
“I am fairly sure we will see a plethora of changes driven by MCD that will lead to many more innovations and improvements to an already growing sector, which will enable us to really kick on and settle into the “mainstream”,” he adds.
For Steve Walker, managing director of Promise Solutions there is a chance we will see roles within the sector change, at least temporarily, as the market gets to grips with regulation.
“Once seconds are fully regulated by the Financial Conduct Authority, I am sure we will see at least one lender decide to go direct to networks or clubs in an attempt to gain market share which in turn reduces business flowing through their packagers,” he says. “The market simply isn’t ready for this given the complexity of the process, the need for experienced packaging, and the need for a good sized panel and expertise in order for mortgage brokers to provide suitable outcomes.
“I am not an advocate of biting the hand that feeds me and lenders which go down this route risk being swamped by abortive work, poor quality applications and some disenfranchised key partners. This model will no doubt evolve over time for some lenders but expert packagers will always be required, they will add huge value at a time when mortgage brokers need support and lenders which rush to bypass their packagers may deeply regret doing so.”
Marie Grundy, managing director of V Loans believes we’re going to see more intermediaries than originally thought embracing the second charge sector. The regulator has already made it clear that those brokers who do not offer seconds will lose their whole of market status, have intermediaries had the push they need to engage with secured loans?
“We predict there will be a significant increase in the number of intermediaries that actively refer second charge loans from the estimated figure of 50% to over 70%, following the alignment of regulation between the two sectors,” says Grundy.
Indeed Steve Harness, commercial director at The Loans Engine, says he believes the regulator’s confirmation regarding whole of market status could be a ‘game changer’ for the sector this year.
“In adopting the Mortgage Credit Directive we have signed up to a new status quo, where any intermediary who does not provide advice on second charges can no longer claim to be ‘independent’,” he says. “I predict that this could be a game changer for the second charge market and deliver consistently better outcomes for customers. No longer will the second charge option get overlooked, and customers will get a full advice and recommendation service based on which finance proposition best meets their hierarchy of needs. Intended or not, this is the most positive financial consequence of legislative change for years.”
Paul McGerrigan, chief executive, Loan.co.uk says 2016 will be ‘a game of two halves’.
“There will be a cautious approach to the new year and a gradual development of process and product post Mortgage Credit Directive, with a focus on compliance and operations,” he says. “In the second half of the year when the changes are bedded-in there will be a switch back to a focus on sales, marketing and R&D. New lenders and introducers alike will grasp the opportunities that regulatory change will bring and ensure that products offer greater choice and meet the demands of consumers.”
And Tony Salentino, director of Complete Financial Services, has two key predictions for what 2016 will hold – with one perhaps more relevant than the other.
“Specialist lending will show a dramatic increase,” he says. “And Southampton FC will qualify for Champions League!”