We are seeing more and more second charge loans forging ahead. Encouragingly, completions for April alone were £79m – 53% higher than in April 2016.
The sector is pushing to break annual lending of £1bn for the first time since the recession.
Pricing is easiest to change and it has fallen at all LTVs, with starting rates now at a little over 4%. Product diversification is at its highest ever level offering a product to suit the majority of client needs.
Since the MCD, affordability checks have standardised with those of first charges. Prior to this, a major advantage of second charge over further advance or re-mortgage was increased loan-to-income ratios. In retrospect, it seems crazy for a second charge loan, normally with a higher interest rate, to be permitted at higher LTI ratios. But this was a result of softer regulation outside the FCA and the need to offer an advantage over the other options.
Further benefits remain, such as higher loan to value interest-only, lending with adverse credit, unusual property type and no or low early repayment charges, but these are relatively specialist in comparison.
In today’s market, second charges are chiefly preferred for their economic advantage over the short to medium term.
Borrowers who would trigger an early repayment charge (ERC) or lose low interest rates in order to raise capital are better off taking a second charge, then refinancing either once the ERC ends, the current product expires or the Bank rate is expected to increase.
Virtually all second charge lenders have embraced automation now. Calculation of affordability has been hugely simplified and made more accurate, which can be tailored to region, family size and a host of other factors.
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If you would like to know more about raising capital please do make contact and one of our qualified advisers will be happy to help.