"Whilst at the moment the Christmas decorations might well hide a multitude of sins, when they eventually come down the decision to make those home improvements might appear to be the right one."
Every year, and I suspect 2016 will be no different, we hear about a spike in website activity on Christmas Day from those searching on property portals in order to see what’s available on the market. It’s these types of searches that may also clarify to clients that the option of improving rather than moving may be the right one for them. Indeed, whilst at the moment the Christmas decorations might well hide a multitude of sins, when they eventually come down the decision to make those home improvements might appear to be the right one.
So, how to go about doing this and clearly, from an adviser point of view, how can clients secure the necessary finance in order to do this? Well, you’ll be unsurprised to learn, that we undertake a huge number of second charge loans for clients who want the funding to make home improvements – whether it be paying for a new extension, adding a conservatory, undergoing a basement or loft conversion, or a range of other perhaps more cosmetic touch-ups, a second-charge can be the most appropriate product for their aims.
Most clients seeking this finance will immediately be thinking of a straight remortgage, but as we all know, many people’s circumstances will simply not allow them to do this because, for example, of the cost of coming out of their existing deal or they may find in a post-MMR landscape that it simply does not make ‘mortgage sense’ for them to lose their current mortgage rate.
One recent case that came through our business shows that a remortgage may not be right for the client – in this situation the clients were effectively locked into their fixed-rate and would have needed to pay a hefty early repayment charge in order to remortgage for the extra £55k they needed to fund home improvements. Indeed, given this situation, they would have been borrowing significantly more than the £55k they needed because they would also have needed money to pay off the ERC.
Instead, the adviser recognised that a second-charge would be more suitable and given the raft of competitive rates and terms on the market we were able to source a product that fitted neatly with their existing borrowing. Here, at an LTV of 62%, the interest rate was 4.15% over 23 years – the same term as their main mortgage – which gave them a monthly payment of £311 on a repayment basis. In this case, the client only paid a £295 application fee and a valuation fee of £115. Plus, and this is often forgotten with seconds, the client wanted to book in the builder asap so they needed the money quickly – it was in their account in less than two weeks.
In a similar case, again for home improvement purposes, the clients were seeking £85k for home improvements over the same term as their existing mortgage – this time 15 years. There were some issues with the valuation in this particular case and the client did have to pay a £335 valuation fee plus the £295 application fee. Having said that, they secured the money with a rate of 6.3% which made a monthly payment of £730, and even with those valuation issues the clients went through, they took time to express their thanks for the diligence of our adviser in making sure they were clear on what was happening throughout the process up to, and beyond, when the loan was completed.
So, over the Christmas period, as you’re looking at your home and wondering whether it needs some work, think about those clients who are potentially doing the same. I suspect that in the new year you’ll be fielding many enquiries about just how those borrowers can hold onto their existing mortgage products, whilst at the same time securing the necessary money. Be prepared for these enquiries and make sure you’re fully aware of the second charge options you can either offer yourself or you can introduce via a reputable distributor. With rates from 3.88%, release of funds in less than a week and a fee of only £295, a second charge mortgage could take some beating.
