"It can be beneficial to take a second charge mortgage to pay for the work and then remortgage at the higher property value and, therefore, a lower LTV, in the future."
The growth in second charge mortgage lending has been well publicised in recent months, with more customers seeing the benefits of fast, flexible access to the equity in their property.
A big driver of this demand, of course, has been the explosion of home improvements across the country as multiple lockdowns have inspired people to enhance their surroundings. According to a recent study by GoodMove, nearly half of households carried out some form of home improvement during lockdown, and 10% have built an extension.
If you have tried to get hold of a builder, or other tradesperson, recently you will know that this trend is only going to continue. And there are reports that a combination of growing demand and supply chain issues is driving up the cost of building materials by up to 30%.
For homeowners planning extensive improvements, this is a real consideration as delaying their plans could lead to them ultimately becoming more expensive, and so it could also be a consideration when it comes to deciding how to finance the work. With the ongoing boom in the property market and a further, although smaller, stamp duty deadline to beat in the autumn, the mortgage process continues to be protracted for many applicants, particularly those who are self-employed or whose circumstances have changed during the pandemic. For many then, the potential pace and flexibility of a second charge could be a real advantage.
There is also another consideration. Significant home improvements will ordinarily result in a significant increase in the house price. So, with this in mind, it can be beneficial to take a second charge mortgage to pay for the work and then remortgage at the higher property value and, therefore, a lower LTV, in the future. This approach could help a client to benefit from a lower first charge mortgage rate in the long term.
As we emerge from the pandemic, it’s likely that more people will be keen to pursue plans that they had previously put off. This could be home improvements, a wedding or even a big holiday, and a second charge mortgage could help those plans become a reality, leading to further growth in the sector. If you are not already active in the second charge market, now’s the time to partner with an expert in this area, with the expertise, experience and access to products to help you to help more of your clients.