A lot has happened in the 28 years since The Loans Engine was founded. Now, as the second charge market gets set for the biggest change in its history – full regulation by the Financial Conduct Authority – Loan Introducer caught up with chief executive Ryan McGrath to find out how the company has grown and what’s next.

1988: The average price of a house in the UK is £60,000, economic experts warn that Britain is facing a recession and Andrew Turner sets up Norfolk Capital Limited – the group holding company whose portfolio includes Central Loans Limited of which seconds firm The Loans engine is a trading style.

Meanwhile Ryan McGrath was embarking on a career in financial services.

“When I left school I wanted to be fighter pilot, pathologist or work in an office,” says McGrath. “Clearly like most people I didn’t have a clue what I really wanted to do.  I ended up taking the easy option of working for a high street bank where I spent nine years in various roles before joining The Loans Engine in 1998. I rapidly moved up through the ranks, becoming operations director in 2003 before taking full responsibility for the business in 2014 as chief executive”.

Turner remains the owner of the business today and acts as non-executive chairman of The Loans Engine.

“Andrew is a shrewd entrepreneur and in the early days he grew the business very rapidly and ploughed the profits back into the group’s balance sheet lending business, Central Trust,” says McGrath. “Thanks to his prudence, I am proud to say that we are financial stable and have traded successfully through two tough recessions without ever having to seek external investment.”

Following his appointment McGrath has seen The Loans Engine experience something of a rollercoaster ride. Through the early 2000s the second market was booming. The company employed 350 people and were writing £60 million of second charge business per month – roughly the same as the whole second charge market today.

“We were very profitable but if you’d come to see us you wouldn’t find flash cars in the car park,” says McGrath. “That’s not our style. Fortunately, all of the profits were retained within the business which got us through the fallow times to come.

“At the bottom of the market we had just two lenders on the panel, including Central Trust. Credit policy tightened and it was heart breaking to turn customers away who we could have helped previously. 2009 was an incredibly tough year. We saw all but one of our competitors close their doors. We were able to continue trading but we had to cut our cloth accordingly and down-sized the business through two painful redundancy programmes. I’m afraid it was survival of the fittest. It really hurt to make people redundant but by doing so we were able to continue trading and provide jobs for the rest of our staff.”

And it’s not just the market that has changed a lot over the last 28 years. Indeed, the company’s strategy has also undergone significant change. Almost all of The Loans Engine’s business used to be sourced via affinity partners or direct from consumers. However, around two years ago the firm made the decision to enter the intermediary space.

“This was because it accounted for 50% of the whole second charge market and we knew regulation was likely to change, making second charge products even more interesting to intermediaries,” says McGrath. “Right now approximately 25% of our business is generated via intermediaries. This is pretty good going considering we started from scratch two years ago and the consumer channel has grown too.”

In 2003 The Loans Engine started to invest in its sourcing and underwriting system, NEXUS, and it carried on investing in our system even during the recessionary years.

“I emphasise ‘underwriting’ as the system is so much more than a sourcing tool,” says McGrath. “We have lender rules embedded in the system, we have an API link to Equifax to pull back the bureau data via a soft footprint, but most importantly we have API links to lenders’ score cards. This is imperative if you want to offer customers a real choice of both second charge and unsecured loans. We now have a team of six dedicated developers who continue to push the boundaries of loan sourcing and underwriting.”

In 2014 the system was made available to intermediaries and since then two mortgage clubs and two networks have signed up with The Loans Engine with McGrath saying the company is in discussions with others.

Discussions, of course, are also taking place across the industry in an attempt to educate brokers ahead of full regulation of the second charge sector in March. McGrath says The Loans Engine has been out on the road, spreading the message “from Glasgow to Northern Ireland to Cornwall”.

Mortgage brokers have had some time to embrace secured loans, since the FCA took over the regulatory reins in 2014 however the regulator recently upped the ante on brokers to get on board with seconds. Towards the end of 2015 it announced brokers will lose their independent, whole of market status if they do not offer second charges.

“The potential loss of independence seems to have creeped up on everyone and I’ve heard it described as an unintended consequence of MCD,” says McGrath. “But if you take a step back, the customer outcome is truly compelling. Picture this, where a customer requires additional borrowing an intermediary sources remortgage quotes in the normal way; explores the further advance options with the existing lender; obtains an underwritten second charge offer; and obtains an underwritten loan offer.

“The intermediary then deliberates on the four options, makes a recommendation, retains a full audit trail to support the recommendation and presents the customer with a suitability report to explain the recommendation in simple terms.

The question I keep asking myself is, why has it taken so long for us to get to this point as an industry? Here at The Loans Engine we have the systems and infrastructure to deliver points three and four and the lender agencies and skills to package the deals through, and deliver the most appropriate outcome for the customer. But then our model is flexible and we’ll work with our intermediary partners to ensure they get the service and support they need.  If they don’t want to give the advice on seconds we’re happy for intermediaries to simply refer customers to us, and we provide the second charge advice and package the deal”.

One question that arises from the prospect of intermediaries advising on secured loans is whether the role of master brokers will change. McGrath says firms like The Loans Engine will need to be willing to help brokers in whatever way they need.

“When we go on the road and ask 100 mortgage intermediaries to raise their hands if they’ve had a customer take a second charge loan in the last year, you’re lucky if a dozen put their hand up. It’s conceivable that the ones who are comfortable and confident with loans may start giving the advice themselves, and we’ll be delighted to help them with reliable underwritten quotes and packaging.

“But what excites me is the 88 or so in the room that haven’t raised their hands. We need to give them the confidence and support to be able to deliver the right outcomes, all the time every time for their customers”.

Along with regulatory change, the future currently looks bright for the secured market. According to latest figures the secured loan sector is almost a £1bn industry although McGrath is dubious about this figure.

“I’ve been around a long time in this sector and, looking at the industry data, part of me thinks we’re not as close to £1 bn as some would have you believe,” he says. “However, in 2016 I can certainly see significant growth post-MCD”.

As for The Loans Engine, McGrath says its priority for 2016 is to bed in the regulatory changes.

“We expect significant growth in our business as we expand our distribution through our new partnerships plus we have the infrastructure, systems, experiencegovernance to grow in a controlled way and to help more customers than ever to achieve the outcome they deserve,” he adds.