Second Charge Market Watch 2016: The UK second-charge mortgage market entered 2016 after four consecutive years of growth.

Finance & Leasing Association figures showed that new business reached £844 million in 2015. This represented annual growth of 34% by value and 9% by volume.

However, the market was also approaching a major regulatory change. From 21 March 2016, second-charge mortgages would move into the Financial Conduct Authority’s mortgage regime.

For advisers, the change meant more than learning new rules. It required a structured comparison between remortgaging, further advances and second-charge borrowing.

Second-Charge Lending Grew During 2015

The second-charge market was gaining momentum before the new Mortgage Credit Directive rules took effect.

According to the Finance & Leasing Association’s 2015 second-charge market figures, new lending rose to £844 million during 2015. This was 34% higher than in 2014.

The market completed 20,647 new agreements, an increase of 9% by volume.

It was the fourth consecutive year of growth. However, the market remained much smaller than before the financial crisis, when annual lending exceeded £5 billion.

That distinction matters. Growth showed renewed demand, but it did not mean second charges had become a mass-market product.

What Was Driving Second-Charge Demand?

A second-charge mortgage allows a homeowner to raise additional borrowing while leaving the existing first mortgage in place.

This could be relevant when a client:

• faced a substantial early repayment charge;
• wanted to retain an existing mortgage rate;
• could not raise enough through a further advance;
• needed funds for home improvements or another permitted purpose;
• had circumstances that did not fit mainstream remortgage criteria.

However, preserving the first mortgage did not automatically make a second charge cheaper.

Advisers still needed to compare the interest rate, fees, repayment term and total amount repayable. The correct question was not simply whether the client could borrow. It was whether the proposed structure produced a suitable overall outcome.

Our Second Charge Mortgage Guide explains the main assessment areas in greater detail.

The Mortgage Credit Directive Changed the Advice Framework

From 21 March 2016, second-charge mortgages would move from the consumer credit regime into the FCA mortgage regime.

The FCA’s guidance for second-charge intermediaries explained that firms arranging or advising on these loans would need the appropriate mortgage permissions and processes.

The changes brought second-charge activity within mortgage conduct requirements covering areas such as:

• affordability assessments;
• advised and execution-only sales;
• disclosure documentation;
• responsible lending;
• arrears and payment difficulties;
• staff knowledge and competence.

This placed second-charge borrowing closer to first-charge mortgage advice. It also increased the importance of documenting why one borrowing route was more suitable than another.

Remortgage, Further Advance or Second Charge?

The forthcoming rules made product comparison central to the advice process.

A remortgage could provide a lower headline rate. However, changing the full mortgage balance could affect an existing fixed rate and trigger repayment charges.

A further advance could keep the main mortgage intact. Yet the existing lender might decline the amount, purpose or borrower profile.

A second charge could preserve the first mortgage and provide access to another lender. However, it created a separate secured commitment with its own costs and repayment terms.

Therefore, advisers needed to compare:

• early repayment charges on the current mortgage;
• rates and fees across each option;
• monthly payments;
• repayment periods;
• the total cost over the full term;
• the effect of securing further debt against the property;
• affordability under foreseeable changes in circumstances.

A second charge was not a substitute for comparison. It was one possible result of that comparison.

What the Market Change Meant for Mortgage Firms

Mortgage businesses needed to decide how they would handle second-charge enquiries after March 2016.

Some firms could build their own advice and processing arrangements. Others could use specialist distributors or refer cases to firms with the required knowledge and permissions.

The correct model depended on case volume, adviser competence, regulatory permissions and operational capacity.

Connect’s Second Charge Help Desk supports network members with placement, lender access and case-related enquiries.

Where a firm does not advise directly, a structured specialist second-charge referral service can help protect continuity for the client and referring adviser.

A Technical Market Requires Clear Processes

Market growth alone does not establish suitability.

The 2015 figures showed that second-charge lending was returning as a recognised borrowing route. The regulatory changes showed that the advice framework was also becoming more demanding.

Good advice depends on understanding both sides.

An adviser must understand the available product. They must also understand what the client would give up, retain or pay under each alternative.

That is the practical lesson from the second-charge market entering 2016: a broader range of products creates value only when it is supported by disciplined comparison.

Consumers seeking an adviser with relevant secured-lending experience can use the Connect Experts second-charge adviser search.

Second Charge Market Watch FAQs

What was the size of the second-charge market in 2015?

Finance & Leasing Association members reported £844 million of new second-charge business during 2015 across 20,647 agreements.

When did second-charge mortgage regulation change?

The new FCA mortgage regime for second-charge mortgages took effect on 21 March 2016.

Why might a client consider a second-charge mortgage?

It could allow additional secured borrowing without replacing an existing first mortgage. This may be relevant where remortgaging would trigger charges or remove a favourable rate.

Was a second charge automatically better than remortgaging?

No. Advisers needed to compare rates, fees, repayment terms, early repayment charges, affordability and total borrowing costs.

What did mortgage firms need to review?

Firms needed to consider permissions, adviser competence, disclosure, affordability, processing arrangements and whether to advise, package or refer second-charge cases.

Important information: A second-charge mortgage is secured against the client’s property. The property may be repossessed if repayments are not maintained.