Second charge lending is growing

It is undoubtedly the case that the core uses for second-charge loans, such as for home renovations or consolidating debt, have not disappeared with the pandemic.

If anything, they have become even bigger drivers for borrowers.

One additional area where second-charge loans could prove particularly useful, but which may not be on the radar for mortgage advisers, is for clients classed as being in ‘persistent debt’.

What is persistent debt?

Last year, the FCA introduced a new definition for borrowers in what it termed as ‘persistent debt’.

This was classed as borrowers who have been charged more in interest and fees on their credit card and have paid just the minimum payment for the preceding 18 months.

There is no shortage of ‘persistent debt’ borrowers either. A study by the FCA last year suggested there are as many as three million credit card customers who are in persistent debt, who have paid an average of around £2.50 in interest for every £1 repaid.

Given the difficulties of the last year, let us be clear – the number of persistent debt borrowers is only likely to have increased.

So, what is that got to do with second-charge mortgages?

Well, credit card providers are required to write to borrowers in this position and put together a plan with them to start actually clearing that outstanding debt.

If they can’t, then spending on the card may be frozen.

Now, for some borrowers this won’t be a huge problem. They may have the disposable income to increase the amount they are paying each month, or even simply pay off their balance each month, and carry on as usual.

But let us be clear, the pandemic means there are far fewer borrowers in a position to just absorb those larger payments without it causing further issues.

As a result, these borrowers face having their cards frozen unless they can come up with the funds to get out of this persistent debt classification.

With a second-charge mortgage, homeowners can tap into the equity they have already built up in their property, releasing money to clear that outstanding credit card debt and maintain the card as a spending option, without having to touch their existing mortgage.

It’s a smart way to sidestep any potential early repayment charges or the risk of having to move to a higher interest rate on their first-charge mortgage.

Fantastic start to the year!

Second charge mortgage business volumes grew in the first two months of the year, according to figures published by the Finance & Leasing Association.

It said that £143m was lent in second charge mortgages in the first two months of this year, which was10% more than the same period last year.

In terms of sales volumes, there were 3,222 second charge loans lent to borrowers, 11.6% up on a year earlier.

What are second charge mortgages?

The mortgages are taken out by borrowers to run in addition to their existing mortgage and can be a useful way to raise funds without disturbing your current deal.

They usually have a shorter term than a mortgage and are similar to personal loans. However, unlike high street or unsecured loans, second charge mortgages are secured against your property. As the loan is secured against a property it is likely interest charged will be less than an unsecured loan.

Helpful for the self-employed.

If you are self-employed and have a current mortgage a second charge loan could be just the help you are looking for. Second charge loans are fast to complete and far more flexible than any re-mortgage.

A second charge loan offers a quick affordable solution to raising cash secured on your home.

Why choose a second charge loan?

  1. Faster to complete than a traditional re-mortgage.
  2. Normally less fees.
  3. Attractive interest rates.
  4. Loans are very flexible.
  5. Ability to retain current mortgage deal if on a low rate.
  6. Helps the self-employed

Like to know more?

Our independent advisers are fully trained and skilled in all areas of lending so please do contact us to discuss any requirements you may have.