"Understanding your client’s aims for the project as well as their current financial position will all help to inform the pathway they choose."
Latest figures from the Finance and Lending Association show that there were 2,433 new second charge deals agreed in July, an increase of 149% on July 2020. July’s figures highlight a continuing trend of activity in the market with the three months to July seeing 6,396 deals agreed, equating to £101m – a further 151% rise on the previous year.
This upward trend has been driven by our changing consumer behaviours. A well-known consequence of the Covid-19 pandemic was the requirement for us all to stay at home. With working, socialising and exercising all taking place within the same four walls it’s no surprise that people began to expand or make changes to their homes.
Earlier in the year we published our Broker Barometer findings which showed that 81% of second charge brokers have experienced an increase in demand for financing home improvement projects over the past six months.
According to seconds brokers, two in five (41%) clients said that they are looking for finance options to fund a redecoration project, including fitting a new kitchen or bathroom. A further 41% of broker clients used finance to fund a more substantial home improvement of either an extension or loft conversion. As well as using the funding to improve their surroundings, access to finance of this kind is allowing homeowners and investors to make changes that will add value to their properties for when they come to sell.
Second charge mortgages have become a popular solution for those planning to undertake a refurbishment or extension because of the flexibility they provide. Where mainstream lending products may prove rigid in this circumstance or require greater levels of questioning on affordability, second charge mortgages can provide clients with a recognised and sensible solution that can bend to their needs, both in the scale of the project and their financial constraints.
Using second charge financing also means that landlords and property investors don’t have to rely on personal loans or credit cards to finance their DIY projects, which can be a riskier and more expensive approach to take. Our Changing Face of Buy-to-Let Report found that nearly a fifth (19%) of landlords are funding refurbishments with credit cards or short-term finance products, spending £13,000 on average.
Understanding your client’s aims for the project as well as their current financial position will all help to inform the pathway they choose. Second charge is a specialist lending product and therefore requires expert teams to support clients with the complexities associated with this type of funding.
Looking to the future, when asked for their outlook on the market, brokers who specialise in the second charge mortgage market were nearly three times more confident on the outlook for the lending environment for the rest of the year, compared to the end of 2020 when asked previously. Of the same group of brokers surveyed, 75% said they were confident in the opportunity for business growth when thinking ahead to the remainder of this year. This is a significant rise from just 19% who said they felt confident in December 2020. These figures demonstrate that the current rate of growth within the seconds market is not changing anytime soon, the past 18 months have shown homeowners and investors the benefits of seconds mortgages for both large and small renovations or projects. The market must react to the rising renovation trend and provide viable products for clients that support their needs and can be tailored depending on their financial situation. second charge mortgages have rightfully provided this in the past year, and we believe will continue to do so for the long term.