Second Sight 2021 with James Briggs.

James Briggs has recently joined Together as an Intermediary Sales Manager, and what he doesn’t know about the second-charge market isn’t worth knowing.

Armed with this knowledge, we approached James for his thoughts on what lies ahead of this sector of the industry over the coming months – and found plenty of reasons to be optimistic. Here’s what he said when we met over video chat.

“There’s no denying 2020 was a difficult year for many lenders and brokers and the second-charge market was not immune to these challenges. A combination of issues – staff working remotely, a huge volume of payment holiday requests (in order to safeguard clients) and the inevitable constricting of products to soften volumes and ensure responsible lending – led to the market funding £730m in 2020. This was a 42% reduction on the 2019 results.

“Recent statistics from the Secured Loan Index show lending in January 2021 in the region of £60m for the month; that’s around 40%-50% lower than pre-pandemic, but I expect multiple factors will conspire to both drive demand for borrowing and force would-be remortgagers down the second-charge route. Combined, I expect monthly second-charge lending to double by this time next year, and I’ll explain why.”

Changing property requirements

“The pandemic has obviously impacted on what many of us want from our homes, and I expect there to be an increase in demand for extensions, loft conversions and the like – whether they’re to be used as a dedicated office space, play rooms or extra bedrooms – perhaps for older relatives who need to move in or children returning home.

“Similarly, there will also be families who realise their home’s existing layout doesn’t work anymore, having spent such an intense amount of time there – so even without extending or otherwise adding space, there may be structural work done to internal layouts.”

Desire to reduce and consolidate debt

“Last year UK households repaid more on credit cards and loans than ever before, at £16bn. Some commentators have suggested this is because we have less happening in our lives to spend our money – and this may be true for some.

“However, for every person reducing their debt, I believe there will be another for whom a reduction in household income (because of furlough or redundancy) has driven credit card utilisation. There will, too, be some who are taking the opportunity to give their debts due focus.

“Debt consolidation is historically one of the most popular reasons for additional secured borrowing, this will undoubtedly drive second-charge volumes over the next 12 months as many high-street lenders are increasingly cautious about capital raising for this purpose.”

Affordability concerns

“As the long-term economic impact of the pandemic begins to take effect, I anticipate a trend where employers (particularly in the retail sector) will seek more flexibility in their workforces. With this in mind, I expect to see an increase in the number of jobs falling into the ‘gig economy’ with employers offering short-term and ‘zero-hours’ contracts.

“People who were previously employed on a more structured contract, and who now want to borrow again, may be discouraged or unable to remortgage out of their first-charge loan because of lenders’ policies around affordability in the gig economy.”

Adverse credit

“This is perhaps obvious, but it bears stressing – borrowers may find that the rates they’re offered are suddenly increased because of credit incidents in the last 12 months, and therefore they may want these rates to apply only to new borrowing. In other words, second charges often represent value for these clients, as they are able to protect their existing high street mortgage product.”

Popularity of fixed-rate first-charge loans

“Around half of all new mortgages include a fixed-rate period of five or more years, and it’s understandable why borrowers would crave this stability – especially at the moment. But this does mean a huge number of people find themselves subject to Early Repayment Charges if they suddenly need to re-mortgage and a further advance is not available.

“Not only that, but first-charge lenders have initiated active retention strategies that mean some customers repeatedly fix their rate for the duration of their mortgage. These execution-only transactions mean borrowers could be inappropriately tied in when their circumstances actually call for flexibility.”

Buy-to-let opportunities

“There are likely to be many properties coming to the market in the coming months for all sorts of reasons: relationship breakdown, Brexit, repossessions, generations of families moving in together, and inevitably deaths.

“Tragic though this is, objectively these do present an opportunity for buy-to-let landlords to add to their portfolio and some will be thinking ruthlessly at this time. We’re one of the few lenders who offer second-charge loans on residential investment properties. Investors who have strong background income can supplement the interest coverage calculations by top-slicing and fund deposits for future purchases by leveraging the equity in their portfolio.”

Thank you James! Do you agree with his assessment? Let us know on LinkedIn.