With the second charge sector embracing MCD earlier than the FCA’s deadline all eyes are on the lending community to see how they will fare in the post-MCD world. But who are currently the front runners in the secured loan sector Christine Toner investigates
Ask those operating within the second charge sector which lenders they think are leading the way and you’ll be met with similar responses across the board. Indeed, there’s certainly a feeling of ‘everyone’s a winner’ in this corner of the market with almost every major player receiving a nod of acknowledgement or word of praise.
Indeed, Steve Walker, managing director of Promise Solutions says it’s hard to single one out as edging out the competition and leading the way.
“It really depends on your definition of leading the way,” he says. “There are some lenders, such as Precise and UTB, who could be seen to be ‘leading the way’ because they adopted an MCD approach to their affordability criteria earlier than others. That meant when we moved across to the ‘new world’ on February 15 their customers and their pipeline business were not greatly affected.
“There are other lenders who are leading the way in terms of their product breadth, particularly Prestige, Optimum, Together, Precise, Paragon and Shawbrook.”
Marie Grundy, managing director of V Loans say there are a number of lenders who have been instrumental in shaping the market to reflect the complexities of borrowing needs whilst at the same time driving down the cost of borrowing to its lowest ever level.
“The consistent leading lights in the industry include the likes of Shawbrook, Precise, Prestige and Together,” she says.
Indeed, proving that ‘consistency’, Harry Landy, sales director at Enterprise Finance also cites Together, Shawbrook, Prestige and Paragon when asked who’s dominating the market. However while he says these remain among “the big hitters” he adds that he is also expecting great things Optimum Credit in 2016.
“It is perfectly positioned to take advantage of the gradual shift to automated systems,” he says.
Technology is a key factor in what makes a lender stand out.
Promise’s Steve Walker says developing technology that simplifies the second charge sales process will give lenders an edge.
“The area lenders should be focusing on now is how they can reduce the cost of processing,” says Walker. “If fees are going to get driven down or masterbrokers are going to be tolerating lower fees so it’s better for the consumer and there is an expectation that second charges are one day going to have similar fee structures to first charges then things need to change because the second charge process is more complicated and is more costly.
“Lenders who are looking at developing technology to provide automated valuations or to obtain a credit search without having to write off for a reference, and, as a result, reduce their costs will become more attractive to both brokers and consumers.”
While MCD preparations have taken priority for most lenders over the last two years there is a general consensus that once the new regulation is bedded in we will start to see further innovation in product development.
“Last year there was a significant movement in the the buy-to-let sector but currently the whole market is taking small steps,” says Walker. “We’re not seeing swathing changes being made to products. With MCD upon us that suits us fine – we have enough change to content with. I expect lenders will start to look at new products once the upheaval of MCD is behind us.”
Marie Grundy also believes post MCD we’ll see more innovation, not least because the increased interest in the market could result in some new players and, as a result, greater competition.
“MCD should prove to be a conduit for product innovation – as well as the lenders already
mentioned we know it is highly likely we will see new entrants move into the second charge
market,” says Grundy. “It is a great opportunity for lenders to lead the way in revolutionising this sector.”
Grundy says she would like to see further innovation in the second charge buy to let sector in 2016. The surge in buy-to-let second charges, which saw the likes of Prestige and Precise launch products allowing landlords to borrow against their buy-to-let properties to increase their portfolios was welcomed in the market but Grundy says there is still more opportunities in buy-to-let to be explored.
“Buy-to-let lending in 2015 was dominated by remortgage activity, so there is a huge opportunity for lenders to open up this market to a wider audience, but to achieve this we need a greater range of more competitively priced products,” she says.
Across the wider second charge market of course rates in the sector are more competitive than ever. Indeed, with some lenders offering loans at around 4 and 5% it’s not just regulation that are bringing seconds more in line with their first charge counterparts.
While the rate wars will no doubt continue we should also see greater competition in terms of criteria going forward.
“There has been plenty of competition on rate over the past couple of years, but it is on flexibility of criteria where we would expect there to be the most innovation and creativity going forward,” says Landy. Amendments to the consideration period should also improve the customer experience.”
While specialist lenders will continue to dominate it is unlikely we will see any charge for market share from high street lenders. Despite the buoyancy the market is experiencing and the fact MCD brings seconds in line with firsts, mainstream lenders remain somewhat uninterested.
“Currently high street second charge products only exist in the form of further advances which are only made available to existing customers,” says Grundy. “This is why the second charge lending market is vital in helping those borrowers who may find the option of a further advance either unsuitable or unavailable to them.”
Enterprise’s Harry Landy says the market is not big enough to spark the attention of the high street.
“We would certainly expect specialist lenders to continue to dominate the sector as high street banks have rarely expressed much of an interest in it,” he says. “Given annual second charge mortgage lending is currently around £960m a year according to the Enterprise Finance Secured Loan Index, high street lenders probably regard this as relatively small beer compared to the £220bn yearly gross mortgage lending.”
Simon Mule, commercial director, Optimum Credit
What inspires this market is the drive and hunger of the brokers who support the second charge industry and those brokers see the recent regulatory changes in a very positive light and have worked tirelessly to be ready.
At Optimum we have a desire to build systems and develop products that help to make a broker’s life easier whilst ensuring that the journey for the customer is one that achieves the most appropriate outcome.
2016 has all the signs of being a good vintage, the market is positive and I’m sure we will raise a glass to its success once or twice during the year!
John Webb, head of personal loans, Paragon Bank
Second charge lending is a growing and important part of Paragon’s business. We want to continue building on our success in this space and key to this is ensuring we offer intermediaries a clear and efficient service that makes life simpler for them, and for their customers.
Roger Morris, sales director, Precise Mortgages
The opportunities for brokers to work with the quality master brokers and embrace the massive potential that these fundamental changes offer are truly incredible. 2016 is all about education, education and education. My aim is to travel throughout the UK and educate the brokers in my workshops about the dynamics and diversity that secured loans offer.
Maeve Ward, sales and operations director, secured lending, Shawbrook Bank.
With the introduction of MCD we will be able to introduce new products and open up new channels to widen the opportunity for customers to source the mortgage they need. Since mid-2015 we have been running a nationwide series of learning academies for our broker partners, providing an introduction to the MCD and the regulatory changes that will widely impact the first and second charge mortgage market when advisers will become required to advise customers of the potential suitability of second charge mortgages.