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Does the market need more second charge bridging lenders?

A recent survey has found that the market is currently split over whether there is a need for more second charge bridging lenders.

The poll conducted by Bridging & Commercial saw 53% of respondents agree there needed to be more second charge bridging lenders, while the remaining 47% believed that the market didn’t.

The latest Bridging Trends report for Q4 2017 revealed that second charge bridging lending had increased for the third consecutive quarter.

Meanwhile, the report found that first charge bridging – although still significantly higher than second charge bridging (80.3% to 19.7%) – had fallen in terms of share when compared to Q3 2017 figures (82% to 18%).

Will more lenders move into the second charge bridging market?

“The industry tends to be split between those that fully understand, advise and have a history of lending in the second charge bridging sector, and those that don’t,” said Richard Tugwell, group intermediary director at Together.

“Lenders who don’t are more likely to label this kind of specialist lending as only for sub-prime customers.

“In reality – and along with other types of specialist lending – second charge bridging loans are proving an increasingly popular alternative, as the high street becomes more reluctant to lend in certain situations.”

James Bloom, managing director of short-term lending at Masthaven, believed there could be new entrants to the market: “…Competition is likely to increase over the coming year, as more lenders take advantage of relatively low-cost funding and face a growing need to get further funds placed into the market.

“However, this certainly doesn’t mean there isn’t room for further competition, particularly if a lender can enter the market with an innovative or more cost-effective proposition that really draws attention from customers.”

Daryl Norkett, senior sales at Shawbrook Commercial, added: “There are a large number of borrowers in the market looking to protect existing low interest rate mortgages, so the market potential is evident.

“There are still a number of first charge bridging lenders who aren’t offering second charge bridging, and this would be a natural next step in the evolution of those lenders product ranges – so more products are a likely future development.”

Jon Salisbury, managing director at Ortus Secured Finance, said: “I suspect we will see more lenders providing second charge loans as they compete for a share of this crowded market.

“The test will be whether they bring something new or offer more of the same.”

Avamore Capital is a bridging lender which doesn’t offer second charge products.

It said it wasn’t planning to enter that market, with Zuhair Mirza, principal at Avamore Capital, adding: “We’re not active in the second charge loan market, but the impression we get is there has been some price competition in that segment too, which would imply the market isn’t short of lenders for the existing products being offered.”

Paresh Raja, CEO of Market Financial Solutions, pointed out that institutionally funded bridging lenders typically preferred not to do second charges, but those who had more autonomy on funds could take a view and be more flexible.

“Risks include high LTVs, [with] unsuccessful projects, therefore, there is not much room for margin of error, especially for second charges.

“However, property prices have risen significantly over the years, therefore, there is a great opportunity to tap into the equity without breaking the mortgage deal and at the same time security is significantly backed up.

“This makes it more appetising to offer second charges.”

What do brokers think?

Chris Whitney, senior broker at Enness Commercial, felt that, from a broker’s perspective, there could never be too many lenders.

“…In theory, it drives competition and innovation, albeit time consuming for brokers to stay updated with all of them, so they can be sure they are giving clients [the] best advice.”

Chris Fairfax, managing director at Positive Lending, added: “The second charge bridging market is well-serviced, but rates have not fallen proportionately to reductions in first charge bridging and often LTVs are typically 5-10% lower than first charge.

“It would assume the split opinion is based on the assumption [that] any new lenders would not improve product, risk or pricing.

“All would welcome a new entrant if they genuinely add some value above [and] beyond what is currently available.”

Jo Breeden, managing director at Crystal Specialist Finance, felt second charge bridging was still a limited market, however, it was questionable just how much demand there was for this business type.

“What products do exist are now ERC free, offer cheaper rates and may be less risky and thus more suitable for clients.

“Lenders entering just because they see it as a profitable market may struggle, however, lenders that feel that [they] can add value – either as first or second charge – are the ones that will get business and improve the outcome for customers.

“But as always, it simply has [to] be the correct choice for the applicant based on what is available, and there are some excellent products in the market.”

Source: Bridging and Commercial