One of the main challenges for advisers in 2022 was keeping up with demand; 2023 may well be a quieter market, or at least not so much of a rollercoaster of activity, and as such, brokers may need to be more proactive at securing and retaining clients.
As the market adapts to a higher interest rate environment, borrowers will not only be looking to secure the best rate possible but may also need solutions to help them navigate their way through the cost of living crisis.
It may be that borrowers and advisers need to consider options they haven’t done so before, such as a second charge mortgage.
Second charge lending reached its highest annual lending figure since 2007 in the year to November 2022, according to Loan Warehouse’s latest Secured Loan Index.
We expect the market to remain on an upward trajectory throughout 2023, representing an untapped market for those advisers not already active in this sector.
The next 12 months will be an anxious time for many borrowers with some rethinking their finances. Those brokers who can offer solutions outside of a first charge mortgage can offer clients a wider, more holistic advice process – building connections for many years to come.
For advisers offering first charge mortgages, a second charge should be comfortably within their wheelhouse but there is an option to refer to a packager if this is a more comfortable approach.
UK Finance estimates there are 1.8 million borrowers due to come to the end of their fixed-rate deal in 2023 and a second charge may prove beneficial to some of these. Those who took out two-year deals and bought close to the height of the market for example, may find their options more limited due to affordability constraints.
Their property might have gone down in value since they bought or last remortgaged, or their income might no longer cover the rising cost of their outgoings.
Alternatively, it may be that the cost-of-living crisis has caused them to borrow more on credit cards and loans, and this along with their other outgoings is hampering their remortgage prospects – especially if they have fallen behind with payments.
Given the pressures on affordability, we may see an increased number of borrowers turn to product transfers, which don’t undergo the same stringent affordability tests.
For those borrowers who move onto their lender’s Standard Variable Rate (SVR) or take out a product transfer, one option could be to consolidate some of their debt in preparation for when they next remortgage.
Consolidating their debt may allow them to rehabilitate their finances somewhat as they await rates to come down and property prices to increase once again; putting them in a better position when they do come to remortgage further down the line.
Given the increased pressures on borrowers’ finances, advisers will need to be able to offer their clients a broad range of solutions. In a more subdued market, they can offer clients the right solution will be at an advantage. In a digital age it has never been easier to promote your business and the services you offer.
You may already have borrowers in your existing client bank that would benefit from a second charge but are unaware of how it might help them.
There may also be a degree of apprehension amongst clients if they already know they are likely to run into affordability issues due to their existing debt.
Reaching out to existing clients and explaining the services you offer could help improve their financial situation earlier and put them in a better position for when they next come to remortgage. As the market changes, advisers may need to diversify too and for those who don’t advise in the sector already – second charges should be the first port of call on that list.
Kerri Pender is operations director at Evolution Money
