After the Covid-19 pandemic, the war in Ukraine, the cost-of-living crisis, Queen Elizabeth II’s death, the Truss government debacle and the mortgage market turmoil, it’s been really rather refreshing to read some good news.
Specialist lender Together recently published its 2023 Market Report, an extremely comprehensive look at the state of the property and finance markets, including SME finance, personal finance, social housing, green mortgage, intermediary sentiment and second charges.
The report makes for extremely interesting reading, especially because it is based on independent research conducted by Opinion Research, as well as from industry partners and open source data.
It is clear from the report that the market for second charges in 2023 is positive, so much so that Together concludes that it expects the second charge market to grow by 20% over the next two years.
According to the specialist lender, today’s challenging property market means that many property owners are opting to enhance their existing homes rather than relocating. In addition, as the post-pandemic era embraces hybrid work, creating a dedicated workspace and owning a home with a garden has become a priority for many.
Together cites research from DIY store Toolstation which found that during the first half of 2022 there was a staggering 500% increase in garden building sales, while loft conversions experienced a similar surge. Consequently, while the demand for home purchase mortgages may not be as high as before, solutions for optimising existing homes are being sought out by homeowners.
In addition, a survey from Together itself has revealed that 72% of homeowners planning to stay in their current residences are content with their homes. Meanwhile, 10% haven’t found a better option, and 9% cannot afford to move due to living expenses. 9% of those who plan to remain in their current homes intend to make improvements, which represents a sizeable number of homeowners.
When asked how they were planning to fund these improvements, respondents said personal savings (63%), personal loan (8%) and remortgaging (5%), but 14% didn’t know how they were going to fund them.
Despite second charge finance providing an answer to the funding of home improvements, Together says that the average borrower is mostly unaware or wary of it, with only 43% of people knowing about second charge mortgages, and of those, 40% saying they wouldn’t want to take one.
This is where education is needed. Because of the continuous Bank Base Rate rises since December 2021, the remortgage route to financing home improvements is largely closed, because it is simply inadvisable for borrowers with a low fixed rate on their mortgage to lose it by remortgaging to release equity.
Conversely, a second charge mortgage can be an ideal solution in such situations. It allows clients to retain their fixed rate mortgage while utilising a second charge against their property to secure funds for home improvements. Even if the fixed rate on the existing primary mortgage isn’t highly competitive, clients may encounter punitive Early Repayment Charges (ERCs), making the second charge mortgage a more appealing alternative.
At Specialist Finance Centre, we work with brokers who have varying levels of second charge mortgage experience. As a master broker and packager, we maintain relationships with a majority of second charge lenders, ensuring comprehensive coverage.
We offer loans ranging from £10,000 to £500,000 and products that rely on affordability assessments rather than income multiples. Our expertise enables brokers to discover solutions that significantly benefit their clients, ultimately enhancing client retention.
Together’s forecast of a 20% expansion of the second charge mortgage market is unsurprising to me; I believe that as more brokers become knowledgeable about the product and recognise its value, its growth will continue to accelerate. They just need to also educate their clients about the merits of second charges.
Daniel Yeo is managing director of Specialist Finance Centre
