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.

Second charge completions are at a new peak

A survey recently conducted has reported the fallout from Brexit and now Covid-19 has had little effect on the second charge lending market as 68% of loan applications resulted in an offer this financial year. This figure is 24% higher than the same period last year.

The proportion of offers that subsequently resulted in a completion also increased to 80% this year compared to 71% last year. Brokers also experienced a significant 3% jump in the number of second charge enquiries they received than last year.

Research also found that the Brexit outcome has not significantly affected the flow of customers through the overall second charge approvals process. It would seem the UK public have taken Brexit onboard and now dealing with Covid-19.

This form of lending is now hitting all the predicted levels from two years ago, as homeowners take advantage of the low loan rates on offer. The survey also stated importantly that borrowers much prefer this form of lending to the unsecured alternative.

A second charge loan is a serious alternative to a re-mortgage, with so many options open to the borrower it is highly recommended to seek professional advice. The lending market is a very confusing area for most borrowers so do seek advice from an independent broker as they will have access to all products available.

Can we help?

If you would like to know more about second charge lending and how it could assist you do make contact and one of our independent advisers will be happy to guide you.

Second charge and reducing debt

Paying off bills has become a major issue in the second charge market with three out of the top five broker-related searches cover debt enquiries or people with county court judgements, according to mortgage database Knowledge Bank.

This demonstrates that a number of people are struggling financially and are using their homes to secure debt against. The one constant in January was ‘Maximum loan to value’ which has been the top searched ‘second charge’ criteria since May 2019.”

Broker searches for furloughed workers hit the top spot in the residential market, for the first time since August 2020.

Independent brokers are working with an increasing number of clients on the job support scheme, who were potentially struggling to get a mortgage. This became increasingly difficult in January as lenders have continued to restrict criteria for those on furlough.

As we move into 2021, the mortgage market continues to shift dramatically. There is significant interest in debt consolidation in the second charge market, while the buy-to-let sector continues to attract interest from both potential and existing investors.

The furlough scheme is at the top of brokers requests in the residential category as thousands of families are, or have now been, affected by being on furlough. Just how supportive lenders will be of those that have been on the scheme is still being established.

Need some assistance?

If you think this type of loan could assist you in your future planning it is especially important to ensure you get the correct deal to suit your needs. There are many different lenders offering numerous second charge loans so please do call our advisers who will be happy to help you achieve the correct loan for you.

Energy price are going to increase

The news just broke that this spring many families’ household energy bills are set to rise by £96 per year. So we thought we would take a quick look at easy ways to make sure you’re getting a good energy deal…

Energy regulator Ofgem announced a sharp increase in bills for up to 15 million households on Friday as it lifted the price cap on energy by an average of £96 a year to £1,138.

The price cap – a limit on both the amount suppliers can bill for each unit of electricity or gas a consumer uses and on daily standing charges – applies to 11 million customers who are on “default tariffs”, meaning either they have never switched suppliers, or that their discount “fixed” deals have expired. 

The 4 million people on pre-payment meters -generally the poorest in the UK -would also see a sharp rise in bills, by £87 to £1,156.

The move – which will come into force from April 1 – returns the cap on prices to their levels before the pandemic. 

The regulator said it had taken the step because the wholesale cost of energy – which the suppliers pay – had returned to more normal levels after plunging during the Covid emergency. Emma Pinchbeck, the chief executive of Energy UK, a trade body for energy suppliers, said that the price cap is set in a way that is meant to be fair for both customers and suppliers.

The news of the price cap lifting immediately led to claims many households will struggle to make ends meet. 

Citizens Advice research in December 2020 indicated that 2.1 million households were behind on their energy bills – up 600,000 from pre-Covid levels.

Where do I go to switch energy provider?

Switching can take time but is often worth it to quit overpriced legacy tariffs. 

Try taking a look at comparison app USwitch – it bills itself as making the entire process less stressful by allowing you to manage all your providers and switch between them within the app.

It is also worth heading to moneysavingexpert.com. Martin Lewis’ site allows you to compare energy tariffs. For example, it will allow you to see which provider is offering the cheapest green energy tariff. 

The site states that most people on standard tariffs could save around £200 per year by switching. Lewis has said he hopes the price cap – which he refers to as a “rate cap” – lifting will “shock some people into action” over their energy bills. Appearing on ITV last night, Lewis explained that consumers may make even greater savings than websites currently show once the cap is lifted from April. 

Price comparison website Comparethemarket.com also offers to quote how much the site’s tech thinks your household should be paying.

Of course, do check out the regulator’s site first for official tips.

Second charge interest rates are still very advantageous for homeowners.

For the time being second charge interest rates are likely to remain at their all-time lows. If you are considering a new loan now could be the time to make your move, there is a feeling amongst the experts this trend could soon be reversed.

Second charge loan interest rates have been tumbling for months now. A second charge loan could be used as an alternative to a re-mortgage if it fits your lending criteria.

Second charge lending is growing in stature and is now a serious alterative to the once traditional re-mortgage.

One thing you should do if you are contemplating taking out a new loan is to consult an experienced professional independent adviser as this form on loan will not suit everybody.

Lenders have seen the potential growth in this area of raising funds and have responded well by offering competitive short and long-term packages to suit the majority of requirements. More and more innovative products are coming onto the market all the time which has to be good news for the consumer.

Remember this is a secured form of lending and therefore will in most cases be far cheaper than an unsecured loan.

These days the choices of loans open to homeowners is vast and it is vital to get the correct one to suit your needs. Making the wrong choice could prove to be expensive over the longer term so do seek independent professional advice.

Need some assistance?

If you think this form of loan could assist you in your future planning, please call one of our independent advisers who will be able to guide you in the correct direction.

Second charge loans and the advantages

Years gone by second charge mortgages may have been overlooked or consciously excluded from the options considered by mortgage intermediaries for clients looking to capital raise.

The alignment of regulation has led an increasing number of mortgage advisers to explore more deeply the options available to their clients, and with good reason.

In a sustained low interest rate environment, there has never been wider availability of low-cost borrowing options for those seeking to re-mortgage.

However, there are groups of borrowers who may need to raise finance but would be financially disadvantaged from the prospect of re-mortgaging away from their current deal.

Interest-only existing mortgage focus

Interest-only mortgage borrowers often find themselves between a rock and a hard place when it comes to further borrowing especially if they want to retain their existing terms. If they re-mortgage, there is a strong possibility they will have to sacrifice their interest-only mortgage. Many borrowers these days can get a nasty shock when they attempt to apply for a further advance from many mainstream mortgage lenders. A practice widely applied by mortgage lenders either requires the borrower to provide proof of their exit strategy for repaying the interest-only loan, or a conversion of their existing mortgage borrowing as well as the new loan amount onto a capital and interest basis. This situation in many cases makes raising capital a non-starter, leaving the client frustrated. This is where a second charge can be a vital alternative.

Second charge to the rescue

A second charge loan would enable them to retain the bulk of their borrowing on an interest only basis and on their existing terms, whilst taking out the additional mortgage on a repayment basis. With over 3.3 million interest-only mortgages in the UK, a second charge could potentially be of enormous benefit to this group of borrowers.

Can we help?

If you are looking to raise capital against the value of your property please do contact us and one of our independent advisers will be happy to assist.

Lenders and borrowers alike think the second charge market has many positives

Second charge lenders in the UK are positive about the future, the majority are expecting this sector of the mortgage industry to grow rapidly according to a new lending survey. Borrowers also expressed a very positive view.

The upbeat outlook from the lenders suggests that the use of second charge loans as a financial tool for homeowners to raise capital is becoming far more established.

Some 78% of lenders expect their business turnover to grow by at least 17%. In addition, they are positive about the prospects of providing a better and quicker turnaround of business as they streamline the application process.

However, they are slightly less optimistic about the long-term prospects of the UK economy, positivity has decreased.  The survey report says that this is likely due to the Covid-19 pandemic and the uncertainty of the of the Brexit conclusion.

Lenders are split about the direction of property prices, with 57% expecting slight growth and 43% expecting prices to fall.

The majority remain cautious about future prospects for the UK in a very uncertain world, in which the economic climate can change overnight, lenders are confident that they will continue to prosper.

These finding would seem to support the real boom in second charge lending. There is little doubt a second charge loan when used correctly can be a very good avenue of raising funds for the homeowner.

Like to know more?

If you wish to raise funds using your home as security, please do make contact and one of our independent advisers will be happy to assist.

The great British DIY season will soon be with us.

Almost half of the UK’s homeowners are planning a home improvement project in the spring/summer, according to recent research. Each homeowner on average will spend £5000 from their savings pot to pay for it.

Almost a quarter of people making home improvements are planning to draw on their savings (22%) with the remainder borrowing to fund the work.

A total in excess of £30bn is set to be spent on DIY projects in the next few months alone.

Most popular

Decorating is the most favoured DIY job, with 41% of homeowners planning to get the paint brushes out before December arrives.

A savvy 18% of respondents are taking advantage of gardeners being quiet and commissioning landscaping projects to get their garden in shape for 2020.

And for 12% of respondents, upgrading the kitchen is the top priority, even if it adds to the domestic chaos during the summer months.

Fund raising

Using a second charge loan is likely to offer better rates of interest as the loan is secured on your property.

Unsecured loans from high street banks and other sources can be notoriously expensive, we have all seen the rates charged by the so called “pay day” lenders.

The reason for a secured loan being more cost effective is due to the lender having to assess the risk. If you are a high-risk borrower they will need to offset the risk with higher interest rates. So, if you offer security, then the risk involved is much lower and the lender will offer far better rates.

This is indeed particularly useful for those special groups such as the self-employed, retired or those who have had past credit problems.

Why choose a second charge loan?

  1. Faster to complete than a traditional re-mortgage.
  2. Normally less fees.
  3. Extremely 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

Need some assistance?

If you think this type of loan could assist you in your future planning it is especially important to ensure you get the right one to suit you. There are many different lenders offering numerous second charge loans so please do call one of our independent advisers.

Confused? What is a second charge mortgage?

A second charge mortgage is a loan borrowed against your home, on top of your existing mortgage. As the second charge is secured against your property, you need to have sufficient equity in your home to support the loan.

If you were ever to default on your repayments and have your home repossessed and sold, the ‘first charge’ mortgage lender would get their money back first, and the ‘second charge’ lender would be paid back after the mortgage and potentially other secured loans have been repaid.

As the second lender is taking a higher risk, second charge loans are usually charged at slightly higher interest rates than mortgages. But they are a great deal cheaper than unsecured personal loans that is for sure. So, it is obvious why you might choose a second charge over a personal unsecured loan. But why would you consider a second charge loan, rather than simply re-mortgaging and borrowing more on your first charge loan?

Second charge loan or a re-mortgage

You are paying an extremely low mortgage rate.

Thousands of mortgage borrowers in the UK are on exceptionally low lifetime tracker mortgages taken out pre-2008, paying less than 2%. If you are on one of these deals and you want to borrow, say £30,000 extra, your mortgage lender may offer you the extra cash but insist that you re-mortgage the whole deal onto a higher interest rate.

You need a quick turnaround.

It can take several weeks to organise a re-mortgage. If you require extra finance in a hurry, going for a second charge will be the quicker and cheaper option available to you.

Can we help?

Need to know more? Please do contact us and one of our independent advisers will be happy to assist.