Steady progress is the theme of the day in the second charge mortgage market. It is becoming more and more of an attractive alternative to the first charge market.
Lender competition is increasing, which is driving product development. A number of lenders are also introducing new fixed rate loans with no early repayment charges.
Service is another area in which competition is hotting up, with more lenders introducing automated valuation models instead of the full valuation or drive-by valuation that had previously been required.
As part of FCA regulation, income verification has become more rigorous, so lenders are focusing on improving other parts of the process to ensure overall service levels are not impacted.
And, of course, with greater competition comes lower rates. At the time of writing, the lowest published rate for a second charge loan is under 4%, which is comparable with some first charge mortgages.
Realistically, it is unlikely rates can be driven much lower but, at current levels, second charge loans provide an attractive solution for clients in a number of situations.
Why a second charge and not to re-mortgage?
There are many borrowers on a lifetime tracker or variable rate so low they would be unable to match their current rate by re-mortgaging. For clients in this situation who want to raise extra money from their property, it can sometimes be more cost effective to use a second charge loan to borrow rather than shift the entire balance onto a more expensive rate.
Some first charge lenders have lost their appetite for debt consolidation and we are currently seeing a lot of demand for second charges in this area, particularly given rates are so competitive. It is so easy to run-up unsecured credit nowadays and we have worked with a lot of people who are near breaking point because of the strain of meeting the monthly payments.
By moving the balances onto a cheaper second charge loan, borrowers can immediately relieve some of the strain while they work towards a long-term solution to manage their debts. But always remember this form of loan to consolidate debt is not always the solution, do speak to a professional independent broker who will be able to guide you in the correct direction.
If you would like to know more please make contact and one of our independent advisers will be pleased to assist.