Unless you were on a desert island for the Summer, it won’t have escaped your notice that the mainstream residential mortgage market is in a state of flux.
In case you have been stranded on that island however, then I’ll recap by stating that in late September, due to the impressively rapid work of Liz Truss and Kwasi Kwarteng, the financial markets went into a tailspin and the Bank of England was forced to raise the Bank Rate so that at the time of writing it sits at 3%, compared to 0.1% 12 months ago.
Cue hundreds of mortgage products being rapidly withdrawn while lenders tried to establish if and how they could price new deals to replace them.
As a consequence, thousands of borrowers have been left in limbo, unable to find a deal on the high street that works for them.
While the residential mortgage market is still attempting to find its new equilibrium, the need for the specialist lending sector is greater than it has been for a long time.
Right now, borrowers are finding that high street lenders are either offering expensive remortgages or are not interested in providing a solution to their funding requirements.
For example, those with capital raising requirements would until recently have considered remortgaging as a way of releasing equity from their property in order to fund home improvements, which remained popular even through the pandemic due to demand for an improvement environment in which to work at home.
Of course, with mortgage rates much higher than they were, remortgaging could mean to loss of a decent fixed rate, to be replaced by something possibly two percentage points higher, as well as an expensive early repayment charge (ERC).
This is where a second charge mortgage may well be a much more viable and economical option. The borrower can keep their fixed rate (first charge) mortgage, fund the home improvements and, with any luck, increase the value of the property.Â
At the time when the fixed rate mortgage is coming to an end, mortgage rates could well be cheaper than today’s as so the borrower can remortgage and clear the second charge.
Meanwhile, demand for bridging finance is proving resilient and partly this is due to the buy-to-let market. With many feeling the pinch economically, and with rising mortgage costs increasing the pressure, a number of landlords are looking to reduce the size of their portfolios or exit the market completely.
Consequently, there are opportunities for those landlords who are less encumbered by mortgage debt. Investors therefore have to be able to move quickly in order to make the most of these opportunities and bridging finance can be the answer. It allows landlords to purchase property quickly – perhaps at auction – and also finance refurbishment, perhaps to meet the 2025 Energy Performance Certificate regulations.
At Specialist Finance Centre, we’re seeing significantly increased demand for both second charge mortgages and bridging finance and there are no signs that this will tail off any time soon.
For brokers who are not experienced in second charge mortgages and bridging finance, packagers and distributors are key.
For example, at Specialist Finance Centre, we deal with specialist lenders all day, every day and know what they need for a case to have a good chance of being accepted. With bridging, speed is a key concern and brokers are not necessarily conscious of which lenders can provide the funding the client needs within their timeframes; a specialist intermediary firm should be able to steer the broker to the provider who will be able to deliver within the borrower’s time constraints.
Daniel Yeo is managing director of Specialist Finance Centre
