"The tide is changing and a growing number of advisers are increasingly considering second charge mortgages as a viable option for raising additional finance."
Recent figures from the Finance & Leasing Association suggest the market is experiencing a post-pandemic recovery, reporting eight consecutive months of new business volume growth in November 2021 and a 36% increase in the number of new agreements on the previous year.
Historically, activity in the second charge market has remained relatively stable, but the recent and continued growth in the sector suggests the tide is changing and a growing number of advisers are increasingly considering second charge mortgages as a viable option for raising additional finance.
One of the many misconceptions surrounding the second-charge mortgage market has been that rates are significantly higher than in the first charge market. However, many second charge lender panels now have rates that rival those lenders in the mainstream market.
This means that in some cases, it may be more appropriate for an adviser to recommend a second charge mortgage instead of a remortgage to a client looking to raise finance, as they avoid paying an early repayment charge on their first mortgage and also avoid losing a good deal by moving onto a higher rate by remortgaging. This is particularly appealing given the recent Bank of England base rate hikes, and the expectation that more will follow throughout 2022.
Current economic factors such as rising house prices, soaring energy costs and upward inflation are also likely to fuel continued growth in the sector over the next year, as consumers priced out of moving up the property ladder are forced to reassess what they want from their living arrangements.
With more people now working from home on a regular basis, home improvements that create more space such as an extension, loft conversion or even a new kitchen or bathroom, could prove more attractive than moving, and using a second charge mortgage to finance these could help to keep costs low.
For those people who emerged from the pandemic with expensive debt, taking out a second charge mortgage and using the equity gained from rising house prices to consolidate and pay off those debts could also be a wise move given the speed at which house prices have risen over the last year.
According to figures from Nationwide, house prices have risen exponentially over the last 12 months with the ‘race for space’ driving house prices up by 10% in 2021. Currently, house prices are sitting 16% higher than when the pandemic first began in 2020 – the fastest growth rate in 15 years. Therefore, tapping into this equity could prove a shrewd move for any clients still in the early stage of their mortgage term.
For those advisers unfamiliar with the second charge mortgage market, referring a client and working with a specialist mortgage packager will ensure they get the best deal. A packager will take care of the whole process, from sourcing the loan, advising clients, conducting due diligence and liaising with the lender. This frees up more time for advisers to deal with other clients while still receiving a referral fee.
The second charge mortgage market is growing and for advisers with clients seeking additional finance, the sector offers a great alternative to remortgaging. By tapping into existing equity, clients can raise the capital they need while also avoiding the complications and penalties that could potentially come with an early remortgage.
