HELOC potential “20 times greater than that of a second mortgage”, says CEO
Hubert Fenwick, co-founder and CEO of fintech Selina Advance, said there is a “huge opportunity” for the UK mortgage industry to commercialize home equity lines of credit (HELOCs), which could potentially generate £25bn. pounds per year.
The company is said to be the first in the UK to market a HELOC, a type of second mortgage which allows homeowners to borrow against the value of their home and access cash.
However, unlike a second mortgage, a HELOC allows the borrower to withdraw cash as needed instead of a lump sum. HELOCs are a more common mortgage product in the United States, where they are normally used to pay for repairs, renovations and even training courses.
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Speaking to Mortgage Introducer last week, Fenwick said there was a large untapped market for HELOCs in the UK.
He said: “If you look at the size of the US market – $130bn a year on an individual basis – that would imply the market is around £25bn (in the UK). That’s about 20 times the size of a second load market.
A 2016 report by data analytics firm Corelogic noted that the HELOC market peaked in the United States in 2005, when creations totaled nearly $364 billion, dropping to around $150 billion in 2015, although a separate 2017 report estimated that demand for the product would double. by this year.
Since 2020, when Selina Advance gained regulatory approval for consumer lending, the company has issued over $100 million in loans with HELOC products in the UK.
The company recently raised $150 million in Series B funding, while existing investors are also pitching in to raise $35 million in equity. In addition, $115 million of debt has been guaranteed by Goldman Sachs to fund further expansion to first public securitization.
Fenwick, who co-founded the company with COO Leonard Benning in 2019, went on to explain the benefits of the product. He said: “The main attraction is that it doesn’t affect the (borrower’s) mortgage. It rests on top; kinda like a second charge. But it’s also flexible, so you don’t have to pull at any time. It’s like a credit card in that you only pay interest for the funds you need.
He also pointed out that there are no prepayment charges with a HELOC and the borrower is not tied to higher interest debt. “You are not bound in any way. You don’t have to draw anything you’re approved for, so it’s really empowering for owners.
According to a report by US personal finance company, Nerdwallet, the main disadvantage of a HELOC is that it increases the risk of foreclosure if the borrower is unable to repay the loan. It is also not suitable if the borrower’s income is unstable or if he cannot pay the initial fees.
Fenwick, however, stressed that the company wanted to be “very incentive aligned with our borrowers.”
He said: “The maximum we’ll go into is 85% LTV, so we’re still keeping a decent share of the equity in their homes – and they obviously have an incentive to preserve that value.”
He pointed out that while some second-charge lenders were lending up to 120%, Selina Advance would not follow. “We want it to be a tool for financial empowerment and for people to make smart financial decisions and save money. We don’t really see it as a tool to just add more leverage or take on more debt.
When asked why the product didn’t catch on earlier in the UK, he said: “The UK banking system is very oligopolistic. There has been very little innovation in many areas. They have huge mortgage companies, huge credit card companies, huge
current account businesses, but they haven’t really focused on creating new products that really benefit owners.
Although Fenwick said he expected demand for HELOC to “explode in the UK over the next five years”, he added that it would take time to educate customers and loan advisers. mortgages.
“We’re building a business for the very long term – you don’t educate a market overnight,” he said. “The US was the pioneer of credit cards, but it took the UK about 10 years to catch up and now credit card usage and penetration is almost identical in the UK and United States.”