Loan Introducer

Why apps will be the next big thing for second charges

Matt Meecham

Chief digital officer, Evolution Money

If you are anything like me, the chances are you have downloaded an app – or several – over the past month or so. Whether it be to order your Saturday night takeaway, check the weather, or entertain the kids, there seems to be an app for almost any purpose.

Astonishingly, figures from app data agency Sensor Tower show that worldwide, app users spent the equivalent of 53 million years using the top 500 apps during the third quarter of 2021 alone. Its research also shows that, since the start of 2019, no category has seen faster download growth than finance apps.

This is perhaps not surprising given the rise in online banking in recent years. According to comparison site Finder.com, 93 per cent of the UK adult population will be using some form of online banking by the end of 2022.

Furthermore, as of January 2022, over a quarter – 27 per cent – of British adults were customers of a digital-only bank, the equivalent of 14 million people. Finder expects this figure to climb to 19 million by the end of this year.

Digital banking is no longer a niche – at least not to your clients, who are no doubt well informed and practised when it comes to online banking, downloading, and using apps. It’s time we saw this crossover into the mortgage and second-charge space also.

We have seen some slightly chaotic scenes in the first-charge mortgage market over the last few months as some lenders have struggled to cope with the influx of enquiries and to maintain service levels. Numerous hours have been wasted by borrowers, advisers, and lenders manually inputting and chasing borrower details that could easily be collected digitally.

There is no doubt that lockdown accelerated the use of fintech in both the first- and second-charge mortgage sectors, but it’s important that now, as the pandemic recedes, we keep this moving at a fast pace and push the digital journey along. Figures from the Finance & Leasing

Association show new business volumes in the second-charge mortgage market in March had reached their highest level since September 2008.

With both the first- and second-charge mortgage markets expected to remain busy for the foreseeable future, it is vital we meet this demand with a secure, efficient, and speedy service.

For certain borrowers, a second-charge mortgage can be a speedier option compared to a remortgage, and the use of financial apps within the second-charge market is set to accelerate this further. There is strong demand from clients for a more digitalised experience, and this is something we know first-hand with the recent launch of our Evolution Money app.

During the initial stages of our launch, we gave borrowers the option to upload three months of bank statements or use open banking. The uptake was greater than expected, with over 90 per cent of borrowers opting to go down the open banking route.

Those borrowers who downloaded the app also saw the time it took to release their funds from the initial referral stage decrease by over two days. Over time we expect to double this to four days for our digital and hotkey broker partners.

Enabling borrowers to download the app not only speeds up their application but also significantly reduces the workload for advisers. Digital features such as the e-signing of documents, digital identity verification, document collection and online status updates all make for a safe, secure, and smoother client experience.

Second-charge customers can at times be more complex in their lending needs, or their income may be comprised of non-standard features. They might be self-employed or have some credit blips, or their financial profile may include various threads, such as bank accounts or loans.

Using open banking through the app means we can harness all of an applicant’s credit history and data together in one place. The automation of the income and affordability assessment also allows for a deeper borrower fact-find and ultimately leads to a more informed responsible lending decision.

There is clear demand and enthusiasm from borrowers for open banking – and if we as an industry are not attuned to this, we risk losing out.

As we head further into 2022 with both the first- and second-charge mortgage markets continuing to move at a fast pace, the service that advisers offer their clients will be more important than ever. There will also be an expectation from clients that, just as in most other aspects of their lives, their second-charge mortgage will be done online via apps using a digital journey. It’s up to us to meet this expectation and provide the tools to allow this to be accomplished. M I

Rising rates will highlight capital-raising methods

Tony Marshall

Managing director, Equifinance

Much is being written about the volumes of fixed-rate first charge mortgages that are going to expire this year, just at a time when interest rates are going up, along with the likelihood that the base rate could reach 2.5 per cent by the end of the year. Naturally, much attention from the adviser community will be focussed on helping clients access the next best alternatives as the door begins to close on ultra-low rates.

All those who have had personal foresight or taken professional advice and have just started or are in the process of enjoying a fixed-rate mortgage are going to be feeling pretty good about their choices around about now.

As the change in rates and increases in the cost of living take their toll on household budgets, one of the less thought-through consequences of rate rises will be those felt by fixed-rate customers wanting to raise capital for home improvements, for example. If rates continue to rise this year, the old default choice of remortgaging will become less and less attractive to customers. Why? When it comes to the timing of a remortgage, existing fixed rates are unlikely to be matched by their successors as the base rate rises. So the regulator will understandably begin to question recommendations advising customers to give up a particularly attractive rate in order to raise capital by replacing it with an inferior product via a remortgage.

Of course, there are other reasons why a remortgage might not be suitable, but I believe that those who have managed to lock in a fixed rate before the rises we are now seeing will not want to face the upheaval of leaving their legacy fixed rate to pay a higher price on a remortgage. With the next few years likely to see more of a return to rate volatility, which is a phenomenon that the newer generation of advisers and customers will not have experienced before, there is still time for advisers to reconsider their advice to capitalraising customers.

This issue makes it even more important that compliance departments pay particular attention to remortgage cases and their suitability, especially if the BoE base rate continues to rise and the gap between historic fixed rates and whatever is on offer in the future widens.

The reasons to consider a secondcharge solution when clients wish to raise capital are already well documented, but the likelihood of an increasing gap between old and new rates is a clear and present danger to those advisers who already lean heavily on a remortgage strategy. Consumer Duty guidelines from the FCA coming under greater official scrutiny, especially those around transaction data, are going to make advice justification more transparent and make it more difficult to hide.

Yes, I am writing this as the head of a second charge lender, so I do have more than a passing interest in promoting a second charge option. However, if rates continue to go north, it stands to reason that brokers should be reassessing their reasons for blindly adopting the usual remortgage route without weighing up an alternative before making their recommendations.

For those brokers who have never gone outside the remortgage route or aren’t even licensed to advise on second charge mortgages, I think it is time that they consider changing their status or engaging with a wholeof-market packager or distributor to give them the flexibility to at least do meaningful comparisons, so customers (and compliance departments!) can see the level of consideration that has been given before a final recommendation is made.

The lending industry has come a long way in moving to a position where second charge mortgages are no longer beyond consideration. Lending figures clearly demonstrate that, post-COVID particularly, the market, while dwarfed by its first charge cousin, is winning new friends every day.

The strong likelihood of rising rates over the next 12 to 18 months is likely to see a further shift in attitudes toward second charge solutions for capital raising. I am sure that the regulator will be taking a keen interest. M I