Uncertainty in the economy over the past few years has altered the landscape of the UK mortgage market, bringing greater demand for specialist lending products and an increased need for tailored advice, as borrowers try to navigate a higher interest rate environment and increased living costs.
Most recently, the slowdown in the housing market has also led to a significant uptick in the take up of product transfers (PT) as more borrowers opt for a low-stress PT with their existing lender while they try to ride out the current volatility in the economy.
Figures from UK Finance show product transfers accounted for 83% of remortgaging activity in Q2 2023 alone, compared with an average of 77% in the whole of 2022, with this increase driven mainly by affordability constraints as well as increased competition among lenders, many of whom are prioritising customer retention by offering greater options and attractive pricing for existing borrowers.
While taking out a product transfer may prove to be a more suitable and cost-effective solution than remortgaging for those at the end of their term, for those borrowers looking to capital raise with a year or two still to run on their current deal, taking out a second charge mortgage could offer a more attractive solution by enabling them to tap into the equity in their home without losing the preferential rate on their first charge mortgage.
The popularity of second charge mortgages has increased in recent years as both brokers and their clients start to realise the benefits of second charge loans as a quick and flexible alternative to remortgaging.
Figures from the Finance & Leasing Association (FLA) shows £136m worth of new business was written in June 2023, and demand for this type of financing continues to grow.
There are a number of reasons why a broker should consider a second charge mortgage over a remortgage for any client seeking to capital raise, including those cases where the customer plans to renovate or extend their existing home; needs money for business purposes or to pay a tax bill or requires funds to finance a medical procedure, buy a holiday home or even pay for a wedding.
In each of these cases, a second charge mortgage could provide the solution they need while keeping the terms, and preferential rate, of their first charge mortgage intact.
This is particularly beneficial in those situations where capital is needed quickly, because a more streamlined and less complex application process, means the money can often be available within four to six weeks.
Another benefit of a second charge mortgage is that in the majority of cases, the client is unlikely to need a solicitor to carry out any legal and conveyancing work, as most applications are conducted by brokers directly with lenders.
This can help to prevent any back-end delays and helps to release the funds more quickly.
Similarly, in most second charge cases, an AVM is more than sufficient in helping to determine property valuations, which again can help to avoid the lengthy wait or delays often associated with securing a physical valuation and can enable the client to move quickly.
As with all financial products, second charge mortgages may not be suitable for every client, but for brokers with customers looking to raise funds to carry out renovations, pay off debt or finance other lifestyle obligations, a second charge mortgage may be worth considering as they offer a fast and flexible financing solution without the penalties that can come with remortgaging.
David Binney is head of sales at Norton Home Loans
