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OFT issues guidance for second charge lending - 22/07/2009

Second charge loans - sometimes referred to as 'homeowner' loans - involve consumers with an existing mortgage taking out a further loan secured against their home. Firms offering or arranging such loans must be licensed by the OFT.

The OFT today published guidance on standards expected from businesses engaged in second charge lending.

Download OFT guidance for lenders and brokers (pdf 105 kb).
Download Q&A (pdf 62 kb).

Second charge loans - sometimes referred to as 'homeowner'  loans - involve consumers with an existing mortgage taking out a further loan secured against their home. Firms offering or arranging such loans must be licensed by the OFT. In order to hold a licence, a business must satisfy the OFT that it is fit to do so.

Second charge loans are often used by those who may have difficulty in obtaining credit by other means. Last year, the size of the market was estimated to be approximately £3bn, with the average loan size around £20,000.

The guidance sets out the minimum standards the OFT expects from businesses engaged in second charge lending if they are to be considered fit to hold a licence. It covers the entire lending process including selling techniques, customer care, and practices around the management of arrears.

Ray Watson, OFT Director of Consumer Credit, said:

'Second charge lending is considered a high-risk activity by the OFT given the risk that borrowers could end up losing their homes if they default on payments.

'All businesses operating within this sector should act with appropriate regard to consumer protection and fair business practices. Our latest guidance reflects this, and we expect all firms within the sector to comply with it.'

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