Why Second Charge Lending is Expected to Soar?

The last year has seen markets subdued due to the various lockdowns that we have all had to suffer but hope is now on the horizon that the vaccination program here in the UK is working and beginning to allow some form of normality to return to our lives. It is widely expected that the next 3 months will see most restrictions removed and international travel and hospitality being restarted.

Over the last year, the economic impact suffered by individuals will have been very different but a rough way, we have tried to categorise this as follows:

• Key workers: these people will have enjoyed their full income with possibly extra overtime payments over the pandemic period while at the same time, will have found their outgoings reduced because of the closure of hospitality venues and holiday travel.
• Furloughed employees: In these cases, people will have generally seen a 20% drop in their income but in the same way as key workers, their outgoings will have reduced, leaving them fairly well financially balanced.  They will however be generally in fear that their jobs may be lost and will be worrying about their future.
• The self employed: Government was slow to provide support for these people and when it came, many fall through the cracks. In general though, those that gained support are likely to be in a similar situation to those furloughed except where they have had to accept debt to keep their businesses afloat. Those that fell through the cracks may already have lost their businesses or be seriously in debt.
• Business Owners: Help for businesses has mainly come through the government making it easier for business owners to borrow money but not providing by providing direct support in the way of grants. Many businesses will close and many will struggle in future to repay their debts. Those in the hospitality sector have been particularly badly hit and they deserve our sympathy. Many are on their knees and may not survive.
• Landlords: Landlords have received no help but making it worse, government has stopped evictions meaning that tenants can stop paying their rent leaving landlords with no income but still fully responsible for meeting their mortgage payments and other costs.

As people found themselves locked down, most have turned to the internet to purchase the things that they needed.  Paying online with cards, often this would have been charged to high interest charging credit cards and as a result these people will now have built up substantial debt that they will shortly find a burden to repay.

Where people in the categories described above have mortgaged property, they may be finding that remortgaging their property is proving difficult as lenders have been showing reluctance to lend.

Government created the furlough scheme which has so far secured the jobs of millions of workers but they also encouraged people with mortgages to apply for payment holidays and a great many people took advantage of this.

Unfortunately, lenders are now treating these people as high risk and have consequently adjusted their lending criteria to reflect this risk which often means that they have been effectively stopped from remortgaging their homes or purchasing new ones.

It has also been a difficult year for Landlords with property portfolios and tenants who because of furlough or job losses, find that they are unable to pay their rent. Many landlords will be facing bankruptcy and finding that their lenders are reluctant to provide the remortgaging products that would help them through their crises.

According to data provided by the Finance & Leasing Association (FLA) there has been a substantial drop in second charge mortgage lending during the lockdown period of the last year. During January alone, second charge new business volumes were down 40% on the same month last year.

Putting that into perspective, around 1,302 new agreements were made during January, amounting to about £56m which was slightly up on the previous month.

One economist at the FLS has said that  a strong recovery in consumer spending is now expected in the second half of 2021 and that the consumer credit market will return to growth this year, with new business expected to increase by 13% in 2021 as a whole and the quarterly level of new credit to return to pre-crisis levels in the final quarter of 2021.

Many of our own partners are now reporting that they are seeing an upturn in the number of requests they see for second charge mortgages and judging from what those clients are saying about their personal situations, we foresee that the volumes of enquiries is going to soar, driven by home owners need to replace high interest charging credit card debt with low rate longer repayment term loans.

In a similar vain, landlords who used up their capital resources during the pandemic and who are now struggling to find lenders willing to remortgage their portfolios, may look towards second charge lending as a solution to their financial problems.

All this indicates to us that while normal mortgage lending remains subdued, large numbers of people may turn to second charge lending to solve their problems, be this debt reduction or reaching out to achieve their ambitions.

If you find yourself in any of the situations described above and would like to get information on second charge lending, please get in touch.