UK inflation reached a double digit high of 10.1% again in September, driven by the steepest rise in food costs for over 40 years as the cost-of-living crisis continues to grip the country.
In addition, erratic government fiscal policy and geopolitical concerns have driven up interest rates to their highest level in 14 years.
Against this backdrop of economic and political uncertainty, the second charge mortgage market has continued to gain ground, with figures from the Finance & Leasing Association (FLA) reporting another strong performance in August.
Annual new business volumes were up 5% on pre-pandemic levels and accounted for £153m for the month, an increase of 61% on the same period last year.
Over the year to August, the value of new second charge business was valued at £1.47bn, an increase of 53% on the previous 12 months.
The boom in business is no surprise given the fact that rising interest rates has made the prospect of remortgaging an unattractive proposition, with those homeowners on fixed rate mortgages and looking to raise capital, unwilling to sacrifice the existing rate on their first charge mortgage.
Instead, many are turning to second charge mortgages as a way to repay existing debt or finance home renovations, with the FLA figures showing that 54% of new agreements were for the consolidation of existing loans, while 15% were earmarked for home improvements. A further 25% was cited as being for a combination of both.
The uptick in demand for second charge mortgages looks set to continue in the future too, as a growing number of borrowers move to lock in rates to mitigate the growing uncertainty in the market.
Recent analysis of FCA mortgage lending statistics by estate agency Savills has shown that 19 out of every 20 buyers seeking a mortgage applied for a fixed rate product in August, while the proportion of mortgaged homeowners who have fixed their rates is also at an all-time high of 84.9%.
Given the continued market volatility, and expectations of a further hike in the base rate, these borrowers are unlikely to want to move on their fixed rate loan should they need to capital raise in the future. Instead, a second charge mortgage can help them tap into the equity in their homes while keeping their first charge mortgage in place.
This is particularly attractive given the increase in house prices over the last few years, with those borrowers who have recently purchased property likely to have a significant amount of equity at their disposal that can be unlocked through a second charge.
Not only does taking out a second charge mortgage safeguard the preferential first rate on the first charge loan, it also means the borrower can avoid paying any early repayment charges associated with remortgaging.
In addition, the streamlined application process means funds can be released much quicker than remortgaging. Average turnaround times are currently sitting at approximately three to four weeks, with some loan applications completed in days. This is ideal for those borrowers looking to access funds quickly.
As with all financial products, second charge loans may not be suitable for everyone, but for those looking to raise capital to carry out renovations or pay off debt accrued over the last few years, second charge mortgages are worth considering as they are a fast and flexible option for borrowers looking to raise money quickly without the penalties associated with the remortgaging process.
David Binney is head of sales at Norton Home Loans
