The ramifications of the Covid-19 pandemic are serious and long-lasting. Not only will economies around the world take years to fully recover, but habits, both personal and societal, have changed significantly and possibly for ever.
These habits range from the superficial to the extremely significant. For example, in the world of work we may well have said goodbye to overfamiliar air-kissing (or worse!) and the days of men wearing ties also look to be over (in fact, if I was concerned about job security I wouldn’t want to be in the business suit tailoring business either).
On a more substantial front, the days of working in the office 9-5, five days a week are already a thing of the past for millions of people. What seems to be taking its place is ‘hybrid working’, where staff work in the office for a certain percentage of time every week and are based at home the rest.
As a side note, one of the reasons that businesses are now largely receptive to this idea – despite there being calls for more flexible working for at least the last 20 years – is that it can save them a substantial amount of money. If a firm can reduce its office space by one-third then that has a very positive effect on the bottom line, which may well have been adversely affected by the pandemic.
Now, while a number of business leaders have publicly called for a restoration of pre-Covid working practices, the response from workers has largely been akin to the blowing of a communal raspberry.
In fact, I heard the other day about a local authority in the north of England that is facing a mass exodus of staff following a call for them to work three days a week in the office! We truly are seeing a revolution in working practices.
All this may be well and good (and it largely is) but now we have passed the two-year anniversary of the first Covid lockdown, the novelty of working from home on the kitchen table, in the bedroom or in the box room under the stairs has well and truly worn off.
As working from home has become a more permanent fixture then people have realised they need a more appropriate home environment to work in too.
Typical solutions include a loft extension, building into/converting the basement and extending out of the back of the house.
As these are pretty conventional approaches and have likely been already done by people in the same street, much of this can be achieved under Permitted Development and so will not require planning permission.
As a consequence, builders are in high demand and are pricing accordingly. No one needs reminding that inflation is at a 30-year high, while costs of materials for construction are still expensive because of Covid and subsequent supply chain issues.
What these all mean is that making one’s home working life more comfortable is going to cost – a lot. Thankfully there is a lot of equity in the UK housing market and despite recent base rate rises from the Bank of England Monetary Policy Committee, borrowing costs are historically still pretty low.
One option available to the borrower could be to capital raise via a remortgage, but this might lead to the loss of a preferential rate or a potential early repayment charge.
Another option could be a second charge mortgage and, dependent on the customer’s circumstances, it could prove to be a more viable option in the short term, as it would enable them to protect their preferential mortgage rate alongside both achieving their property aspirations and potentially increasing the value of the property.
If the customer is tied into a fixed rate mortgage then as this approaches renewal they could then look to remortgage and clear the second charge, potentially on a cheaper rate due to the uplift in the property value, resulting in a reduced LTV.
At Central Trust, we’ve been providing second charge mortgages for over 30 years. Every day we’re working with brokers who have come to realise that, by considering second charge mortgages alongside a remortgage when they previously may have just recommended a remortgage, they are providing the best customer outcomes in the spirit of the Mortgage Credit Directive (MCD).
Maeve Ward is director of commercial operations at Central and Mercantile Trust
