According to figures from the Finance and Leasing Association (FLA), the average second charge loan size has increased from around £25k ten years ago to around £45k now.
The loan-to-value of around 60-65% on a second charge loan hasn’t changed much over the last ten years though, so it is higher property values which have enabled the loan size increase.
Average repayment terms requested at the outset are around 15 years, although the majority redeem within about four to five; and two thirds request a fixed rate product giving them surety of their repayments for the fixed period – important when Base Rate is expected to rise further in that period. Even with a fixed rate, having no early repayment charges means the borrower can refinance whenever circumstances suit, without penalty.
Re-mortgage or a second charge?
Why would one opt to take the second charge route rather than re-mortgage?
Lots of reasons actually. For example, many customers have a really good first mortgage deal, maybe a great fixed or tracker rate that they don’t want to give up. Taking a second charge at a higher rate may mean that the blended rate across the whole debt is still lower than a new first deal, so a second charge loan can make good financial sense.
Some borrowers may face a stiff early repayment charge on their first mortgage if they re-mortgage. Others may have had a change in their circumstances which means switching to a bigger first charge mortgage is not an option. Perhaps they started a family or changed jobs resulting in a different source of income. Let’s not forget, second charges can be considerably quicker to complete than re-mortgages, especially with the expanded use of Automated Valuation Models.
Second charge loans do not suit every need and it’s vitally important any potential borrower seeks professional independent advice from a qualified adviser. If you would like to discuss a potential loan please do contact one of our fully qualified advisers.