Second charge lending up 16pc

Lending figures increased £6,500,000 (16%) on December 2013 and £14,600,000 (43.95%) on the same time last year.

January also marks the 27th month of successive year on year growth for the second charge market.

This month, Nick Parkhouse, senior director, RBS Financial Institutions Structured Finance was guest editor of the Secured Loan Index and he gave his opinion on the hot topics effecting the secured loan industry.

Another month and, weather aside, the positive news keeps coming. The secured loans industry has seen its 27th consecutive month of year on year growth, the FLA announced a further fall in repossessions by secured lenders during Q4 (13) and a number of secured loan lenders announced during January they were launching into Northern Ireland.

Northern Ireland brokers finally have a reason to smile. Having spent almost 4 years with little or no options available to them, there is now competition with Clearly Loans and Central Trust launching products available in Northern Ireland.

Clearly Loans was first to launch, with rates from 13.9%, loans to £50,000 and a maximum LTV of 75%. This was swiftly followed by Central Trust who are offering loans of £30,000 and LTV up to 60%, the difference in criteria meaning both products are in demand.

The UK economy seems keen to jump on the good news bandwagon as well with unemployment dropping to 7.1% and growth of 1.9% in 2013 the UK’s strongest levels since 2007. Even the Eurozone, key because of its trade links with the UK, decided to get in on the act and reported positive GDP of 0.3% for the final quarter of 2013.

All in all it would appear that there are a number of positive factors that are underpinning the secured loan market in greater consumer confidence, start of an economic recovery and increased competition leading to more choice and lower pricing for consumers.

This has played out in the numbers during 2013 which finished the year at £493m and has continued its strong performance with £47m in January. This should be positive for the 2014 numbers and give support to continued growth in the secured loans market; however what should we be looking out for?

At some point interest rates will rise and there is a question around the potential impact on loans. From what I have seen so far, stressed I&E’s, sensible loan to value levels and good underwriting discipline should help to part mitigate. A more interesting question is how many lenders will pass any rate rise on and do they have a strategy as to how they will deal with this? Secured loans have long been variable rate – could we start to see an increase in fixed rate product?

The environment for writing secured loans over the last few years has been good and much of it down to lenders setting and following sensible underwriting criteria.

While some loosening of criteria is to be expected as the economy recovers, as competition increases continued discipline will be important to ensure that loss levels remain within acceptable levels and that the lessons of the financial crisis are not forgotten.

To prove that point, last month saw several changes; Masthaven reduced their rates across the range including a new ‘market leading’ rate for BTL secured loans of 9.85%, whilst Shawbrook Bank announced the biggest overall of their product range since launching, reducing rates across their larger loan plans, widening LTV banding and reducing minimum credit scores across the range.

Automated valuation models have, and will continue to have, a part to play in the growth of the sector. We have spent some time looking at AVM’s and coming up with our own thoughts as to where we are comfortable. It should be no surprise that extreme low value and extreme high value properties exhibit lower liquidity and therefore less confidence in their values. As competition increases the attractiveness of AVM’s outside of a lenders usual guidelines may increase however like with anything moderation and discipline is key.

Final Thought

“Lending up, repossessions down, buy to let rates at post credit crunch lows and secured lending returns to Northern Ireland not a bad month.”

Index Methodology: To create the index, Loans Warehouse analyses the figures released directly to them by UK secured loan lenders. Figures prior to January 2012 are taken from the FLA.

About Loans Warehouse: Established by Matt Tristram and Sam Busfield in 2006, Loans Warehouse has become a market leading secured loan brokerage.

Loans Warehouse has been awarded Best Secured Loan Broker status by What Mortgage, Mortgage Strategy and Financial Reporter in recent years.

Loans Warehouse has direct access to every major secured loan lender in the UK.