Tighter underwriting furthers second charge repossession drop
24August 2016

The second charge mortgage market has been boosted by Finance & Leasing Association (FLA) research indicating that repossessions have fallen by 40% during the last quarter.

This news has been welcomed by the second charge market.

Jeff Davidson, head of intermediaries at Fluent of Advisers, said the announcement was further evidence that when customers get into difficulties, lenders were clearly doing all they could to ensure repossession was a last resort.

“The reduction in repossessions by 40%, recently announced by the FLA on behalf of its members, is a really positive statistic which strengthens the case for the legitimacy of second charge loans and will certainly bolster confidence among advisers.

“The growing maturity of the sector and its wholesale embracing of the new regulatory framework can only make more advisers and their customers aware [of] what an attractive proposition second charge loans can be.”

Loan Talk looked to find more reaction to the news and tried to come to an understanding as to why second charge repossessions were falling.

“Repossession is an absolute last resort”

Tony Marshall, managing director at Equifinance, felt there were a number of factors behind the fall, including the lull in the supply of funding during the “recession years”, which could indicate that bad loans have been cleared out of the system and have been replaced by cleaner, better performing loans.

“It may also be indicative of the outcome of house-price inflation allowing specialist lenders to refinance loans and consolidate debt that historically might have led to repossession.

“In addition, although FCA regulation was not introduced until April 2014 and conversion to MCOB [Mortgage Conduct of Business] rules followed in March 2016, the industry has long since adapted its collections procedures and cultures to reflect the need for forbearance, whereby repossession is an absolute last resort.”

“I would be more surprised if repossessions weren’t falling”

Martin Stewart, director at London Money Loans, put the fall in repossessions down to the current state of interest rates.

“Given where interest rates currently sit and aware of how difficult it is to repossess a main residential property, I would be more surprised if repossessions weren’t falling.

“While the economy isn't exactly on for a gold medal right now, neither is it being lapped by Greece, so most people are probably in control of their own finances. 

“Clearly there will be poor lending decisions and various scenarios where clients can't, or won't, make their mortgage payments, but we are in a new type of recession, where everyone is relatively happy and most have job security, so I don’t expect a spike in repossessions going forward.”

“Improved underwriting quality and assessing each case on an individual basis will play its part”

Looking to the future and to whether the trend of falling second charge repossessions could continue, Sam Kirtikar, managing director at Clever Lending, felt there was no reason why it couldn’t continue.

“As master brokers and lenders work ever closer in partnership, this can only have a positive impact for customers in the longer term.

"The overall quality of underwriting is high and each case is assessed on its own merits.

“This helps to ensure that any underlying client income or debt is built in to the lending consideration and in most cases this will mean fewer issues with the loan further down the line.”

Martin also praised underwriting, adding: “I dare say underwriting in the run up to MCD and post-MCD became tighter and whereas brokers now need to see seconds on a par [with] first charge mortgages, so do the banks and their underwriters.”

Meanwhile, Tony concluded by adding: “Going forward, constantly improved underwriting quality and assessing each case on an individual basis will play its part.

“Assessing a customer’s ability to pay both now and in the future is a key measurement during the underwriting process and should ultimately lead [to] a continuation of this trend.”


RT @EquifinanceUK: We consider your clients even if they have irregular income, are #self-employed or are contract workers. Keeping #second