The fact is, brokers are starting to realise that secured loans can offer an attractive alternative to remortgaging and some are embracing the second charge sector and are generating a healthy additional income.
However, while brokers may be starting to sit up and take notice of secured loans, my conversations with many recently suggest they are not all fully aware of the various scenarios in which a second charge can help.
The most obvious scenario when a secured loan may be of use is when a client cannot remortgage. Perhaps their age, employment status, income or credit profile has meant first-charge lenders are unable to help and as such second charge comes to the rescue. This is when many mortgage brokers tend to think of secured loans - a deal they can’t otherwise place. However, there are many other scenarios when a secured loan should be considered, even if a remortgage is available.
If, for example, the borrower is currently on a low rate tracker and doesn’t want to remortgage, a secured loan can be the most cost efficient way of raising some funds. A top up loan at under 5% will often mathematically be preferable to remortgaging and paying an increased rate on the entire borrowings. Similarly, borrowers who need to raise money but would be faced with a high ERC to leave their current deal are ideal candidates for second charge lending.
Scenarios where secured loans can be particularly effective is when current circumstances don’t allow borrowers to access the best remortgage rates right now but their circumstances are due to change soon and the deals available would significantly improve as a result. These clients want a shorter term solution now rather than wait. For example, a borrower who has had some adverse in the past which can be ignored in a years time but they need to raise capital now. As a result they only have access some pretty unfavourable remortgage rates but a secured loan can provide the short-term solution with low ERC’s and an option to still remortgage in a years time.
Low ERC’s can also make secured loans a preferable option to a bridging loan.This is often the case for buy-to-let investors who are unable to take out a mainstream mortgage because the property needs some maintenance or refurbishment work. In the past they may have opted for a bridging loan but second charges are fast becoming the more attractive option with rates starting at under 5% per annum.
We are also seeing secured loans used to raise deposits for buy-to-lets, secured against the buyers own home. This is also possible if the buyer is not a UK resident and wants to use a BTL as security, even with a poor credit record.
It is great to see more brokers embracing secured loans but better understanding of the product and its myriad of uses is needed if the industry is to reach its full potential. An open mind and a good relationship with your personal loan underwriter will go along way towards opening up a lucrative additional income stream and providing better solutions for your clients.
