A personal view of the Second Charge Market – 2017

Robert Owen – Managing Director – Mortgages and Bridging

In 2016 United Trust Bank completed its first full year in the Second Charge market and performance exceeded the already high expectations. Growth significantly outperformed that of the market as a whole and, although that’s a ringing endorsement of our offering, I would have liked to have seen the second charge ‘cake’ growing at a similar rate to our slice of it. I believe we’re still some way off the tipping point of intermediaries considering second charges as seriously as they do re-mortgages. The implementation of the changes due to MCD has increased awareness of the second charge option but we didn’t see the immediate surge in market growth one might have expected as advisers looked more closely at the suitability of second charges when a re-mortgage would have been the previously automatic choice.  Increasing competition in the marketplace has driven interest rates on second charges down significantly. [color_quote]Rates now range from 3.88% which increases their attractiveness to customers and will encourage advisers to recommend them more often.[/color_quote]

The year ahead will see the regulator kick-off a thematic review of mortgage distribution and the second charge sector will play a prominent part in that given the move from CCA to MCoB.  The customer advice process is both complex and time consuming and it will be interesting to see the approach the FCA take in examining this aspect and the quality of the subsequent recommendations.

Article 50 is likely to be triggered in the early part of the year and the roadmap of the UK’s withdrawal from the EU will become clearer. There’s still a lot of uncertainty about the terms of the UK’s independence from Europe and that’s bound to deter some businesses from making significant investment decisions at least until the future becomes less hazy. The weaker pound will contribute to a rise in inflation and if wage growth picks up, GDP growth remains steady and employment levels stay reasonably healthy, it may prompt the Bank of England to consider increasing the Base Rate. Although those with mortgages and little in the way of savings may disagree, I believe that keeping the base rate so low for so long has had an overall detrimental effect, as a having a base rate lower than the inflation rate will in the longer term, damage the engine of growth.

So providing these economic factors are addressed, [pull_quote]my personal outlook for the mortgage market is a positive one. UTB has quickly established itself as a significant participant in the sector, helped in no small way by how we approached MCD.[/pull_quote] With the market having strong potential for further growth, I’m looking forward to seeing what 2017 has in store.