On a general point, I would say that the second-charge market has seen its active lenders expand their product ranges rather than develop new initiatives. There are now some good choices in fixed-rate and discounted products including most recently 10-year fixed-rate deals. There are also products with no early repayment charges from day one, allowing more two-step processes – using a second charge to repair a credit file today with a remortgage to bring everything back together in a year or so.
About nine lenders now offer products above the standard 75 per cent LTV and on buy-to-let there is also a 90 per cent LTV second-charge product available. Talking of which, the buy-to-let market as we know it is going through a torrid time of regulatory changes and first-charge buy-to-let lenders want to protect their interests. The no-consent products from the likes of Evo Finance, Shawbrook Bank, Step One Finance and Equifinance provide a good solution for BTL clients where a first-charge lender will not provide consent for the charge to be placed. For landlords struggling to release equity due to stricter demands from a first-charge lender this provides a good alternative solution.
In terms of interest rates charged – and a major positive point for the sector given the perception mentioned above that rates tend to be high – prices have been tumbling down since MCD. However, this is probably more to do with lender liquidity and pushing for market share than anything regulatory from the changes that were introduced.
There are now five lenders with rates under 5 per cent and a client could get a sub-4 per cent deal with the best rate being about 3.73 per cent. There is also a lender that prices for risk using a score-based system, which can give results of sub-3 per cent interest rates, although most of these deals are likely to be very low loan-to-value.
The biggest test for any new lender wanting to operate in the second-charge market is how innovative they can be with the product range. As most of the products are there or thereabouts, entrants are going to find this particularly challenging.
Criteria is expansive and this is an area where potentially a new lender could gain some market share, but they will need to balance their risk with the requirements of the regulator. It is perhaps why we have not seen any entrants to the second-charge market post-MCD with United Trust Bank launching just prior to the regulation being implemented. There are about 18 lenders that now offer second-charge products.
As referenced, the FCA wanted the second-charge market to have some parity with first charges and it is definitely clear that MCD has driven these two markets closer together. Whether there is the level of parity many second-charge stakeholders envisaged, however, is another matter entirely.
