"The disruption caused by the pandemic and the ongoing service challenges being faced by lenders is prompting an uptick in application enquiries for the use of second charge loans for business purposes."
This sector of the mortgage market is booming, with the value of new business reaching £127 million in April of this year, a monthly increase of 53% and a total of 2,802 new agreements, according to the Finance & Leasing Association.
Home improvements and debt consolidation are still the most common reasons why borrowers take out a second charge mortgage, and also the main driver for the market’s continued growth. But the disruption caused by the pandemic and the ongoing service challenges being faced by lenders is prompting an uptick in application enquiries for the use of second charge loans for business purposes.
We recently successfully completed an interesting case where the applicants had a history of adverse credit and wanted to take out a second charge loan for business purposes. This wasn’t a straightforward case but even the most complex of cases can be resolved with dedicated focus and attention.
In this situation, Norton Broker Services were contacted by two married applicants looking to jointly raise a business loan (£30,000) to purchase wholesale stock to grow their company.
The applicants were both in their early to mid-thirties, self-employed and had an evenly split 50/50 share in the company. They currently have an interest only mortgage with 11 years and one month remaining on the term, but were worried about their chances of securing a loan given the fact that they have a history of adverse credit as a result of a change in income when they had children.
Because of the financial issues they faced when starting a family, the couple were also looking for a fixed rate product that would provide certainty and stability and make it easier for them to manage their loan repayments.
Due to the fact that the second charge loan was for business purposes, we had a restricted number of lenders that were able to assist with the case and it was initially referred to a lender from our panel who took the view that this would benefit the customers’ business long term. This lender also had the cheapest available product.
On completion of the fact find, the adviser recommended a fixed rate of five years as they had no plans to redeem early. This also gave the customers the stability they wanted. It was also agreed that the secured loan would run over the same term as the couple’s existing interest only mortgage so the two loans would terminate at the same time.
The final outcome saw the clients successfully secure a loan amount of £30,000 x 134 months (11yrs 1month) at a loan to value of 68.9% The rate was fixed for five years and had a monthly payment of £400.33.
For those brokers who are unfamiliar with the second charge market, working with a specialist distributor that understands the workings of the sector can help to ease the pressure and challenges that can come with placing tricky cases like the one outlined above, leaving them free to address the needs of their other clients.
Because despite the initial difficulty in trying to place business due to the restricted number of lenders willing to take on the business, Norton Broker Services successfully completed the case within a timely manner and the customer got what they wanted.
