Forging ahead

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The second charge mortgage market experienced a rise in new business volumes of 24% in February, according to the Finance & Leasing Association.

It recorded 2,163 new second charge mortgage agreements over the month worth £98m.

In February, the second charge mortgage market reported its strongest rate of new business volumes growth since May 2017.

The popularity of second charge mortgages continues to grow as people opt to improve, rather than move.

What is a second charge mortgage?

A second charge mortgage is a loan borrowed against your home, as well as your existing mortgage.

A mortgage is the ‘first charge’ against your home. As the loan is secured against your property, you need to have enough equity in your home to support the loan.

If you were ever to fall behind on your repayments and, ultimately, have your home repossessed and sold, the ‘first charge’ mortgage lender would get their money back first, and the ‘second charge’ lender would be paid back after the mortgage and potentially other secured loans have been repaid.

As the second lender is taking a higher risk, second charge loans are charged at higher interest rates than mortgages (first charge loans). But they are cheaper than unsecured personal loans.

They are useful for borrowers who want to make home improvements or consolidate debt for example, but who do not want to, or cannot, re-mortgage their first charge mortgage.

This might be because they have a highly competitive interest rate they do not want to lose, or perhaps because they would be subject to Early Repayment Charges if they re-mortgaged now. It could also be that they are not eligible to re-mortgage, due to their equity stake, credit status or affordability.

Like to know more?

If you would like to more about second charge lending please do make contact and one of our advisers will be happy to help.

 

Tax bills and the second charge market

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Second charge lenders have seen a 12% rise in mortgage activity during Q4 2018, compared to the same period in 2017, due partly to a surge in seconds being used for tax bills.

Of particular note was the fact that roughly 25% of the total loans arranged were partly or fully being used to cover self-assessment tax bills, payable before the January 31st, 2019 deadline. It’s common knowledge that the seconds market is thriving and the fact that people don’t want to jeopardise extremely low mortgage rates is certainly a key driver in this. What stood out in the fourth quarter, however, is how a far larger number of people than usual were using second charges to pay off their tax bills.

Speculating as to why it could be that a protracted period of high inflation has had an impact or Brexit uncertainty has reduced income or work flow.

The secured loan surge mirrors data from the Finance and Leasing Association (FLA), which showed the second charge market grew in December 2018 for the sixth month in a row.

The number of new agreements grew by 13% to 1,792 compared to 1,584 in December 2017, with a value of £80m — 6% higher than the £76m recorded in 2017.

Need some assistance

If you think this type of loan could assist you with your future planning make sure you get the right one to suit your needs. There are many different lenders offering numerous second charge loans so please do call our qualified advisers who will be happy to help.