The Ups and Downs of the 2nd Mortgage Market
It has been a crazy 14 months for the 2nd mortgage market in the UK. As such, the market has been up and down in relation to a number of different things that occurred within the financial industry. Even now the 2nd mortgage market is not doing as well as analysts had hoped. That doesn't mean these kinds of loans are a bad idea, it simply means that people are not taking advantage of them as often as they could.
For the record, a 2nd mortgage is defined as a loan taken out against the equity of a home alongside an existing mortgage. You might know it is a secured loan or a second charge loan. A person who takes out a 2nd mortgage essentially now has two loans on his/her property, with the second charge being subordinate to the first.
You are probably curious as to why the 2nd mortgage market is not doing as well as many experts hfgad hoped at this time last year. There are several things that are now in play.
Mortgage Credit Directive
The Consumer Credit Act, which provided the legal framework for offering second charge loans, came under the control of the Financial Conduct Authority (FCA) in 2014. Almost immediately, the FCA rolled out plans to implement what they labelled the 'Mortgage Credit Directive'. That directive went into effect in March 2016.
Implementation of the Directive immediately injected a bit of confusion into the 2nd mortgage market, leading some lenders and brokers to look for a graceful exit. The skittishness meant fewer 2nd mortgage deals for consumers which, subsequently, led to a slight downturn in the market.
The EU Referendum
The downturn was expected to only last for a short while as lenders made themselves more familiar with the Mortgage Credit Directive. The market did start to rebound, but then the EU referendum was held in June 2016. A successful leave vote injected a new round of uncertainty within the financial sector, resulting in lenders pulling back on their second charge products once again.
Throughout the summer, there was quite a bit of speculation about what it meant for the UK to withdraw from the EU. Again, signs were looking good as the second charge market started to rebound. Then it fell again toward the end of the year on news that home prices were falling.
Where We Stand Now
Heading into the second quarter of 2017, second charge mortgages were down about 2% in total value. Much of that is in relation to home prices falling rather than fewer people taking out 2nd mortgages. In other words, lower house prices mean less equity for current property owners. Less equity allows them to borrow less on second mortgages.
The market is showing signs of life now that the general election is planned, and it appears that the Conservatives will be in charge of managing Brexit. Home prices continue to fall, so an up-tick in the 2nd mortgage market is likely due to more people borrowing using their existing equity.
So what does all this mean to you, as the consumer? It is clear that the 2nd mortgage market has had its ups and downs over the last 14 months. Those difficulties have affected lenders more than borrowers. The most important thing for you to know is that a second charge loan is a possibility if you have enough equity and the income to support further borrowing. The second charge mortgage is still one of the best ways to finance big items.
FT Adviser – https://www.ftadviser.com/Guides-and-Special-Reports/2017/05/04/Guide-to-2nd-charge-lending/2nd-charge-lending-guide-Article-1
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