Second charge watch: an interesting alternative


The second mortgage market continues to experience rapid growth, supported by significant economic and social changes over the past two and a half years.

Data from the Finance & Leasing Association shows the market added £130m in new business in June 2022, which is a 29% increase on the same month in 2021.

Customers should use all the tools at their disposal

New business volumes are also up, year-over-year – 44% for the three months ending June and 61% year-on-year. The 30,849 new deals for the year ending June topped the pre-pandemic peak for the first time as more people considered second mortgages.

Post-Covid Economic Factors

There are obvious economic factors in this growing momentum.

First, many homeowners have seen their property values ​​soar – due to pent-up buyer demand – after the country’s first wave of restrictions eased in 2020.

Debt consolidation helps homeowners benefit from streamlining and often even reducing their overall debt repayments

Stamp duty reductions have acted as an additional stimulus, while the ‘race for space’ has also seen more buyers covet larger, more rural properties, driving up prices in areas outside the big cities.

Low interest rates at the time encouraged homeowners to enter into longer-term fixed-rate deals, providing cheaper (and higher) borrowing for first-time buyers and mortgagers.

Now, with mortgage rates rising inexorably, remortgage is less and less appealing to those looking to unlock extra cash from bricks and mortar. Switching to a higher rate and paying potentially high prepayment charges at the same time are powerful deterrents. Second mortgages offer an attractive alternative in the secured lending space.

Second mortgages may not be suitable in all circumstances

The cost of living crisis is proving to be an additional driver of growth in the second mortgage sector. Increasingly, we are seeing clients using our marketplace and talking to our professional advisors about taking out a second mortgage as a way to ease financial pressures by consolidating existing debt.

Debt consolidation helps homeowners benefit from streamlining and often even reducing their overall repayments to create additional flexibility in their financial situation.

Technological innovation

The second mortgage industry and the technology that powers it are rapidly evolving to meet this increase in demand from homeowners.

Online marketplaces have developed systems that allow customers to shop only for the rates to which they are entitled. This eliminates the potential for rejected applications that can cause anxiety, either simply because they are denied or because of the damage they inflict on customers’ credit scores and their chances of finding affordable borrowing products. .

The cost of living crisis is proving to be a new growth engine in the second mortgage sector

This means owners can be sure they are getting the best deal and can receive regulated, unbiased advice that takes into account their overall financial situation.

Trust

Despite the cost of living crisis, second mortgages may not be suitable for all circumstances. Therefore, getting good advice is crucial for results and confidence in the industry.

The next 18 months will pose significant challenges for household budgets, landlords and perhaps even the real estate market itself.

With rising rates, remortgaging is not attractive

Ensuring clients are using all the tools at their disposal, not just for second mortgages, but for all of their personal finances, will be key.

Shopping around, getting a holistic view of their financial situation, and getting professional, regulated advice throughout the second mortgage process will be important to get through this tough time and come out the other side on a stable financial footing with confidence for the future.

Andrew Fisher is Commercial Director at Freedom Finance

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