Second charge market is booming in 2020

Coronavirus – If you are looking to raise funds it is still a good time to start the process and keep “ahead of the game”. We are expecting a very busy period once the restrictions are lifted, therefore making provisions now will speed up the release of funding.

The second-charge lending market used to be a reserve option, used predominantly by near-prime and sub-prime audiences, but it has been transformed by regulatory reforms, product refinement and tighter underwriting.

As a result, it has grown substantially in the past three years

Homeowners looking for lending alternatives

In recent years, consumer awareness of second-charge mortgages has been low, and second-charge lending distribution has been reliant on intermediary referrals.

Following the Mortgage Credit Directive in March 2016, awareness of second-charge mortgages among first-charge brokers and financial advisors has increased.

This has led to a rise in referrals from first-charge brokers – a trend expected to endure as their awareness continues to grow.

Interest rates are far lower.

Historically, interest rates for second-charge mortgages were relatively high and less attractive compared to alternatives, such as re-mortgaging.

The decrease in rates from typically more than 10% in 2015 to around 4% in 2019 as a result of continuing low base rates.

This has made them more attractive and has also made large loans more affordable and accessible to a wider audience.

Rates in the market have decreased to such an extent that they are beginning to converge with first-charge rates, resulting in many consumers topping up with a second charge rather than re-mortgaging the entire sum at a potentially higher rate.

Way forward:

Second charge loans do not suit every need and it’s vitally important any potential borrower seeks professional advice from a qualified adviser. If you would like to discuss a potential loan please do contact one of our fully qualified independent advisers.