Enterprise’s Harry Landy explains at how regulatory change has revolutionised the second charge lending market.
"Last year, second charge lending, which had been previously regulated under the Consumer Credit Act, came under the Mortgage Conduct of Business rules (MCOB). This meant the regulation of second charge mortgages transferred from the FCA's consumer credit regime into the FCA's mortgage regime.
As you can imagine, since the introduction of the Mortgage Credit Directive there has been a huge number of changes in the second charge lending market.
These changes have been extremely positive. The major one from our perspective is that consumers now benefit from a much more professional approach when applying for a second charge mortgage. The process they go through is now is as rigorous as when they are applying for a mainstream mortgage or a remortgage. From a customer journey perspective this is a fundamentally positive change.
The MCOB requirements mean we go into a lot more detail when looking at why the customer is taking out a second charge mortgage, especially around their income and expenditure. Often it will take up to two hours to make a regulated sale. While it is more time consuming than the old regime, the more detailed information we get from the client means we are in a position to place that customer with more certainty with the right product for their needs and circumstances, first time.
This attention to detail on front-end processes means that the back-end is far more slick.
Evidence of this is shown in our conversion rate. This has gone up because we are investing more up-front time with the customer, which means we are giving them the solutions they need. Ultimately the customer is getting a better service.
The other significant change is that lenders are far more competitive than they were. This is reflected in the products now available, for example we have interest rates starting at 3.83 per cent.
So one of the things we are keen to do is raise the profile of second charge lending to a wider range of brokers because there is perception they are a product of last resort.
This is no longer the case. Ten years ago second charge mortgages came with a double digit interest rates and those who took them out had an average loan to value of around 85 per cent. And of course there were higher fees then.
Now our second charge mortgage clients have an average loan to value of around 57 per cent, and are on average taking out loans of £60,000 behind £235,000 first charge mortgages. These are customers with other options available to them, but for whom a second charge loan is the most appropriate form of lending.
Common reasons for that include preserving their existing first charge mortgage if they have a good deal or would incur large ERCs, or if they have unusual circumstances like becoming self-employed.
