In May 2020, as people were becoming accustomed to life in lockdown, the UK housing market hit a pandemic low. This coincided with lenders in the second charge space removing their focus and resources from lending activity to support their back books, which affected applications made throughout March and April.
We at Pepper were no different. Like so many of our fellow lenders, May 2020 was a low point in terms of origination. We worked hard to quickly introduce the necessary support structures to focus on moving back towards origination. And since May, we haven’t looked back.
We saw 130% growth in completions between May and September of last year and a further 105% growth between September and December. This extraordinary growth has provided many hopes for January to also be ahead of expectations.
Our figures are reflective of the second charge sector as a whole, with the FLA reporting £75.3m of lending in November vs. the May low of £20.7m. We are obviously pleased to have played a significant part in this return.
Of course, the market remains some way off 2019 figures, but the direction of travel is positive. We’re confident that we can continue to keep pushing in the right direction throughout 2021.
Supporting the home improvement boom
A large majority of the focus from the national media around the housing boom has been on house prices; driven by the removal of Stamp Duty and government support to keep transactions intact and increase the confidence of first-time buyers and movers.
Aside from this coverage, in the second charge sector we’ve identified that the growth of the space is closely linked to those who are choosing to stay put.
We saw a steady rise in direct home improvement loans throughout 2020, with garden offices, extensions and loft conversions all featuring as reasons for borrowing. However this only tells part of the story.
What we are also seeing is an increasing number of loans to consolidate unsecured spending which has been incurred in making home improvements. Customers are now needing a longer-term solution for financing their home improvements, with credit cards and unsecured loans not necessarily offering this.
It’s this section of the market, where second charge brokers and lenders can be vital to borrowers.
Extending a helping hand to customers facing new circumstances
In last month’s Pepper Money Insights we explored a few misconceptions around the types of customers who apply for a second charge mortgage. While many believe in the stereotype of customers seeking a second charge mortgage to be less affluent, or with consistent financial blips in their history, this is ultimately not the case.
During 2020 customers wishing to utilise the additional equity in their homes have had their options reduced in terms of capital-raising remortgages, with several high-profile lenders stepping back from this activity.
A number of applicants don’t wish to move to a bigger property when they have the option to extend and improve their current residence. Others may now be priced out of their next step on the ladder and need to make more of what they have.
These are the types of applicants the specialist market can help.
With Parliament currently debating whether the SDLT holiday will end in March, the outcome and impact of this decision on the house price boom is yet to be ascertained. Therefore, we at Pepper Money and others in the second charge space must continue to educate and support brokers to provide the best possible solutions for customers.
If you’d like to chat more about second charge mortgages and how Pepper Money can help your customer’s case, contact Craig Collins on LinkedIn.