"There is plenty for advisers to be positive about in terms of potential second charge business that can be accessed."
Recent data for the three months to the end of January from the Finance and Leasing Association (FLA) revealed there had been a 31% drop in agreements compared to the same period a year earlier, with second charge values of £193m being a 38% drop on the same time frame.
However, what we can also say is the periods we have worked through post-lockdowns – and of course this is our third such ‘event’ which is hopefully coming to an end soon – have shown a steep increase in business levels, and there is nothing to suggest we won’t see strong demand as those lockdown measures are eased.
Indeed, given the underlying financial situation for many borrowers and their needs and ambitions, there is plenty for advisers to be positive about in terms of potential second charge business that can be accessed.
In order to give advisers a steer on the different types of potential borrowers that may be suitable for a second charge mortgage, Evolution Money recently launched our first iteration of an Index Tracker. This is a deep-dive into our data over the last 12 months, which of course covers the lockdowns, and is an ongoing attempt to analyse the ‘typical’ second charge mortgage customer, in order to provide advisers with data and understanding on where such a product might be suitable.
Our first Tracker looks at two six-month periods, although in the future we will conduct this quarterly, and it’s instructive to look at the big drivers when it comes to seconds.
It will perhaps not be surprising to hear that debt consolidation plays a major role in terms of the take-up of seconds, with both prime borrowers, and those who are specifically using a second charge to consolidate, predominantly utilising the secured product to pay off these debts.
Whether it’s paying a bank or loan provider, paying off retail credit or car finance, utility providers or county court judgements, debt consolidation borrowers (and their advisers) are clearly seeing the benefits of bringing all those outgoings into one payment.
And as mentioned, it’s not just debt consolidation borrowers who want to do this. Prime borrowers – who can access better rates and terms – are also taking out second charges to pay debts; our Tracker shows that 59% said they are doing it for this purpose, while 29% said they were intended to improve their home and consolidate some debts, and 9% said it was specifically for home improvement.
That should be instructive for advisers who will, post-lockdown, undoubtedly see a surge in clients looking at their options, whether it’s specifically to pay down debts or if it’s to look at what they can do to their home to improve their living arrangements and/or to add value.
We recently launched a new product range specifically for those borrowers impacted financially by the lockdown/pandemic – whether they’ve had to miss mortgage payments or seen a change in employment or had their credit score impacted. These products are designed for this borrower demographic as we anticipate a greater need/demand in this area, particularly as we begin to see the end of furlough and what impact this eventually has on borrowers.
On the flip side of this, over the course of the year, we’ve also seen a notable tick-up in prime borrowers accessing second charges – in the six months to the end of February this year it was up to 25% by volume and 37% by value, which was an increase from 19% and 31% respectively over the previous six months.
There are likely to be many reasons for this, but one focus might be on those borrowers who feel unwilling or unable to remortgage their existing first charge mortgage in order to release the equity within their property. Certainly, if you are in the middle of a strong first charge deal, with an excellent rate, you’d be loathe to remortgage because of the early repayment charges involved. Far better to take a second charge product which keeps your excellent first charge rate in place, and allows you to access that equity for the cash you need.
Overall, therefore as we all welcome a phased end to this latest (and hopefully last) lockdown, advisers are likely to be seeing a growing number of clients who fit the second charge bill. Even if this is not an area of expertise, advisers have the opportunity to utilise our specialist services, introduce those clients and be confident they are getting expert advice and an affordability assessment where those regulatory responsibilities are covered by us.
There seems little doubt that the second charge market will grow in importance through 2021 and beyond – we are always there to help advisers navigate this particular borrower journey.
