Second Charge Watch: who’s ready for seconds?


I recently had a week long adventure in the Pyrenees. Hiking, canyoning, rock climbing – this is my escape from the hectic world of owning a business that is constantly measured by brokers for its success in delivering clients.

Service level agreements (SLAs) and revenue returns are rightly scrutinized against those of our peers. It keeps me on my toes.

Brokers’ appetite has been revitalized

I found myself alone for about five hours, at the edge of a dam with a frozen lake, and I took time to reflect on the successes of the last 12 months, as well as the opportunities.

The most significant area of ​​growth for us since the third quarter of 2021 has been brokers’ revitalized appetite for second load applications. I analyzed why this market was so popular and why, even though it was in fact the same product as its bigger and more recognized cousin, the “first mortgage”, it continued to offer options that did not were perhaps not available in the consumer market.

But why should it be otherwise?

Same

  • The product is a mortgage; it is recorded as a charge against residential or investment accommodation in exactly the same way – although a fair charge is sometimes used and is not available through Santander etc.
  • It’s been regulated by the Financial Conduct Authority — since April 2016, in fact.
  • Clients are analyzed not only on the remaining equity in their property and the type of property, but also on their ability to repay the loan.
  • Second charge mortgages have reduced in price, similar to the first charge market. However, the overall rate of 6.7% reduced to 3.37% was perhaps more dramatic.

I have worked with my teams to advise brokers on when a second charge is and is not appropriate. But consumers are reacting to factors such as the cost of living crisis, rising tariffs and skyrocketing utility bills, so it’s no surprise that they are looking to shore up their finances.

A Mortgage Broker without this product and a reputable Master Broker to work with might be missing a weapon in their arsenal

Reducing daily expenses is now a huge factor for many; the mortgage market is growing and brokers continue to help new and existing clients.

The regulator says that when considering raising capital, an intermediary should consider alternatives to remortgage, such as unsecured loans, additional advances or a second mortgage. They could take out a second mortgage if that was the best solution – but they rarely do, and that’s where the “different” comes in.

Companies such as Positive Lending have invested huge sums in designing systems that operate within the regulatory framework and help lenders arrange financing, with minimal paperwork involved. This market has survived and thrived through adaptation, service delivery and product design.

The second charge case can be offered within a few days and complete shortly thereafter as there is no legal post-offer obligation to affect a consumer

Pepper Money recently had its second best billing month ever, churning out a product line that dynamically prices each customer based on risk.

A new capital release loan from Selina Finance is popular for the client looking to take out loans with drawdown for their home improvement project, for example. What about 5-year fixed rates with no prepayment charges? No shortage of options for this with many lenders.

Different

In my mind, this market is different in its culture and offers the following differentiations:

  • The policies are not restricted by lenders if the loan is to consolidate other forms of credit. This is common in the mainstream market when raising capital, although caution is key when recommending a consumer, as they are often a vulnerable customer under the FCA definition.
  • Lender SLAs are generally lower than some lenders in the mainstream market. Any legal work, if required, is completed after the loan is funded.
  • Income multiples tend to be more generous. However, affordability will prevail over any multiple of income and will be analyzed by an expert within a brokerage and lender.
  • The relationship between lenders and master brokers is strong. How many times have you, the middleman, worked until 11 p.m. because your mid-afternoon email suggested you only had a few hours to get a particular rate? If this happens on second load, we are usually given a few weeks to get the job done and we get a friendly call from our Business Development Manager to let us know of the pending changes.
  • Speed ​​- a desk inquiry and no consent from a prime lender? The second case of indictment can be offered within a few days and completed shortly thereafter, as there is no legal obligation after the offer to affect a consumer.

I could go on. The market is in poor health and a mortgage broker without this product and a reputable master broker to work with could lack a weapon in their arsenal.

Paul McGonigle is Managing Director of Positive Lending

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