Rising interest rates and mortgage costs are leading to the growth in second charge mortgages, providing a new opportunity for lenders with the technological knowhow, says David Wylie.
The mortgage market has become a lot more expensive for borrowers since the start of the year.
The cost of the average two-year fixed rate is now three times higher than it was last October, according to figures from L&C Mortgages. Even worse for those on variable trackers, who have been hit by a succession of hikes as the Bank of England has raised rates in an effort to stem inflation, now predicted to hit 13% by the beginning of next year.
These dramatic rises in interest costs are already having an impact on the shape of the borrowing market, most notably in the area of remortgages, and specifically second charge mortgages.
It seems that many borrowers are baulking at the idea that they have to remortgage to a much higher rate than the one they already have, and are increasingly opting for second charge secured loans.
According to the Finance and Leasing Association (FLA), the value of new second charge business totalled £127m in April, a 54% increase compared to the same time last year, and new agreements came to 8,520, a 49% uplift as homeowners have looked to capitalise on rising property equity without having to take on board an expensive remortgage.
The boost to the second charge market has provided an opportunity for rapid growth at specialist lenders who, unlike during previous demand surges, have been able to utilise the latest underwriting technology.
Plug-and-play platforms, such as LendingMetrics’ Auto Decision Platform (ADP), have meant lenders are in a position to automate much of the underwriting process without the need for an IT department. They are able to screen individuals in milliseconds rather than hours or days, with real time Open Banking data that is interrogated by sophisticated algorithms.
Some lenders have taken this process one step further by using the new DeeJoop technology from LendingMetrics. By using distilled and normalised data from multiple credit bureaus, patchy, incomplete or ‘thin’ files, which would previously derail applications, are no longer an obstacle to lending.
The upshot of such technological advances is that lenders can maximise every lead that comes their way, without compromising the quality of their pipeline, or risking compliance issues down the road.
Automation has additionally put them in the enviable position of scaling-up their businesses quickly in the face of the sudden blip in second charge demand. The ceiling on growth in the form of the underwriting department’s headcount that used to apply is no longer there.
This technology is turbocharging the second charge market, which is now a much faster, more streamlined way to raise capital than remortgaging.
Going forwards, lenders have the systems in place to manage their loan books in a far more effective way than they have done in the recent past. By accessing data feeds authorised by the borrower they will be able to automatically track spending habits and be forewarned when borrowers are on course to miss payments. A single pre-emptive telephone call while the borrower is still able to meet their commitments can prevent the borrower falling into arrears.
With such knowhow in place, the prospect of continued, profitable growth in the second charge sector looks assured.