Second charge lending totalled £91.4m in March 2021, an increase of 31.27% on the previous month, and data from Loans Warehouse has revealed that second charge lending is continuing to recover from the impact of the pandemic with 1,908 second charge loans reaching completion in April 2021, a 278% increase on April 2020.
Yet a survey by Brightstar showed that 74% of advisers do not tell their clients they offer second charge mortgages. But why? Especially as it has now been four years since advisers were required to consider second charge mortgages alongside other options for raising capital, and they fell under the same regulations as first charge products.
- They don’t fully understand the details
- They don’t know exactly when to recommend a second charge product
- They don’t know how to place a second charge product
- Their customers are wary of second charge products
- There is a myth that second charge products are expensive
- There are concerns over lots of paperwork
Why a second charge mortgage?
The past 12 months have been extremely challenging for the finances of borrowers, and for many the possibility of cutting the cost of their debts and consolidating their loans through a second charge mortgage is highly attractive.
Data from Evolution Money shows that when it comes to second charge mortgages, 59% were borrowing for debt consolidations, 29% for home improvements and debt consolidation, with 9% purely home improvements. Borrowers using a second charge mortgage for debt consolidation purposes did so with an average loan amount of £20.5k.
But there are many other reasons why a second charge mortgage could be a great option for your customer. They offer value to those who are:
- Tied into a current mortgage with redemption penalties
- Benefiting from an existing low mortgage rate but wanting to raise capital
- Being offered a further advance with a higher rate
- Currently on an interest only mortgage product
- Wishing to raise capital for business purposes, including deposits for buy-to-let mortgages
- Keen to retain their current mortgage product but have historic adverse credit
- Recently self-employed, retired or attract income from multiple sources
- Raising capital on buy-to-let property to increase portfolio
Lenders embrace second charge products
Lenders realise the potential for the market and are changing the way they handle second charge products. This is evidenced by changing behaviours including revising the maximum LTV they offer, changing the lending criteria, or cutting rates to deliver greater value and be more competitive.
Specialist lender, West One Loans, has recently confirmed a move to 85% LTV on its second charge offering whilst United Trust Bank removed the monetary value when assessing adverse credit units as part of its criteria. And, Together has cut its variable rate to 4.29% up to 75% LTV.
All this is good news for the second charge market, sending a signal that lenders are keen to lend. It also makes second charge mortgages more widely available and broadens the appeal.
Additionally, there is optimism from those within the market. Richard Bond, personal finance director, Crystal SF said home improvements and debt consolidation still offer the best opportunities for second charges.
He said recently: “Looking at some stats from rates.com, 89 per cent of the millennial age, so 25 to 34-year-olds, are looking to undertake renovations this year like loft extensions. Although debt consolidation took a back seat in 2020 it will come back this year as there’s still a lot of pent-up demand there,”.
Using technology to speed up the process
Technology has a big part to play in the burgeoning second charge market. Research carried out by Nivo in 2020 reviewed customer journeys with lenders and advisers. It showed that in the typical loan cycle it is the broker (55% of hours of effort), rather than the lender (20% of hours of effort) that does the most work to get the deal done. Lenders agreed that improving broker efficiency was the major opportunity, with the need to give them a simpler, smoother, and more consistent service. Additionally, the research showed that reducing deal time and the effort the customer needed to make results in more conversions.
Comment from advisers was that most of their time was involved with administration when they wanted to be able to spend more time adding value with customers.
Both of Mortgage Brain’s product sourcing solutions are well equipped to help speed up your processes and simplify the search for second charge products. MortgageBrain Classic and MortgageBrain Anywhere both have second charge sourcing fully integrated making it easy to compare first and second charge products side by side to quickly find the best one for your customer. You can search based on different scenarios such as terms, payment types, and loan amounts too.
Whether you decide to use a master broker or go direct to a lender, the filters within our product sourcing platforms cater for both options and make the process quick and easy.
Isn’t it time you took advantage of this potential revenue stream?