Demand for Secured Loans grew by 24% for the year to April 2015, beating mortgages, unsecured loans or any other financial product you can think of. Why? The answer is the prospect of firmer regulation and better value products from March 2016. But industry changes are already happening now!

In March 2016, Secured Loans will be redefined by the government as a mortgage product with excellent regulation, as demonstrated by very low arrears and defaults. Unexciting as this may sound, the finance industry is already anticipating this change by offering Secured Loans with greater flexibility and better value. The Secured Loans market will therefore change from being a minor product with current annual lending of only £500m into a much bigger and better product area.

Timetable of changes

Mortgage lenders and mortgage brokers will therefore have easy and low cost access to the Secured Loans or Second Charge Mortgage market. The product will be offered more widely to borrowers and will continue to grow in popularity. We believe that consumers will benefit substantially because:

  1. Consumers can borrow at lower rates than unsecured lending without needing to make any changes to their first charge mortgage. This provides flexibility and the opportunity to fund home improvements and other needs.
  2. Debt consolidation will also be cheaper. Around two thirds of second charge loans are used for debt consolidation.
  3. Poor industry practices will be reduced, such as high fees and poor affordability assessments.
  4. The key protections of the mortgage regime will be applied to Secured Loans. Consumers will only enter into a second charge mortgage when it is appropriate for them to do so, they can afford it and they will be treated fairly if they fall into payment difficulties.

OK this sounds great! But you may be surprised to learn that this change has been forced on the UK government by the European Mortgage Credit Directive. However, the UK government is taking advantage of this forced change to achieve its policy objectives for second charge mortgages: the creation of a market that is flexible and sustainable, encouraging competition and innovation, and meeting consumer needs, while ensuring that consumers are adequately protected from unfair and irresponsible practices.

Key MCD interventions and a comparison with our existing mortgage rules

In summary, by moving regulation from the consumer credit regime and the Consumer Credit Act to the Financial Conduct Authority, this will facilitate a “more flexible and open second charge mortgage market, with more competition, that is better placed to meet the needs of consumers.”

Source: FCA Consultation Paper CP14/20 Implementation of the Mortgage Credit Directive and the new regime for second charge mortgages (September 2014). Feedback and final rules were published in March 2015, see here