Monthly secured lending reached a 5-year high in January with £105.8m worth of transactions, the Enterprise Finance Secured Loan Index has revealed.
This marked a 7% increase in lending from December 2015 and a 59% increase year-on-year.
Harry Landy, sales director of Enterprise Finance, said: “January was a momentous month for the second charge market.
“Finally breaking through the £1bn barrier is evidence of the growing stature of the sector and the increased consumer interest. The huge upswing in lending in January was a positive sign in the run up to MCD implementation, giving lenders and borrowers alike increased confidence.
“Brokers are now using second charge lending as an alternative to remortgage products, with both markets expanding rapidly. The increased competition between the two types of finance will only benefit consumers, giving them additional choice when raising capital.”
Despite the rise in the value of monthly lending, the average loan size fell to £54,894 in January, down from £57,428 in December.
Meanwhile the typical size of the first charge that secured loans sit behind also decreased to £221,868 in January from £230,594 in December.
The loan-to-value ratio dropped to 59% in January compared with 69% in December, marking the lowest LTV ratio since August 2015.
The Mortgage Credit Directive regime has now come into force, meaning loans will be regulated the same as traditional mortgages by the Financial Conduct Authority.
Landy added: “While there may be a slight slowdown at first, the European Mortgage Credit Directive will provide a large long-term lift to secured lending. As awareness of the new regulatory regime increases, the second charge market will benefit from improvements in perception and reputation.
“As a result, we expect more brokers to choose to offer secured loans to their clients, as these products may be more suitable than remortgages. By enabling intermediaries to better serve their customers interests, secured loan providers should gain a greater share of business from consumers seeking refinancing.
“The increased competition from lenders will enable consumers to obtain the best deals possible. Further, there will be more tailored solutions available to brokers that they can offer their customers. Hopefully, with a larger profile within the financial sector as a whole, the second charge market will be able to reach its full potential as a vital tool for raising finance and assist in meeting customer needs.”