According to figures from the Finance and Leasing Association (FLA), the average second charge loan size has increased from around £25k ten years ago to around £45k now.

The loan-to-value of around 60-65% on a second charge loan hasn’t changed much over the last ten years though, so it is higher property values which have enabled the loan size increase.

Average repayment terms requested at the outset are around 15 years, although the majority redeem within about four to five; and two thirds request a fixed rate product giving them surety of their repayments for the fixed period – important when Base Rate is expected to rise further in that period. Even with a fixed rate, having no early repayment charges means the borrower can refinance whenever circumstances suit, without penalty.

Re-mortgage or a second charge?

Why would one opt to take the second charge route rather than re-mortgage?

Lots of reasons actually. For example, many customers have a really good first mortgage deal, maybe a great fixed or tracker rate that they don’t want to give up. Taking a second charge at a higher rate may mean that the blended rate across the whole debt is still lower than a new first deal, so a second charge loan can make good financial sense.

Some borrowers may face a stiff early repayment charge on their first mortgage if they re-mortgage. Others may have had a change in their circumstances which means switching to a bigger first charge mortgage is not an option. Perhaps they started a family or changed jobs resulting in a different source of income. Let’s not forget, second charges can be considerably quicker to complete than re-mortgages, especially with the expanded use of Automated Valuation Models.

Way forward

Second charge loans do not suit every need and it’s vitally important any potential borrower seeks professional independent advice from a qualified adviser. If you would like to discuss a potential loan please do contact one of our fully qualified advisers.

The costs of second charge finance in 2019 is likely to be less expensive than last year, great news for the borrower indeed.

Interest rates and fees have reduced significantly over the last six months as finance companies battle for a slice this ever-growing market. The market is also seeing new incentives added to packages including assistance in funding any survey costs that may be required. These measures are normally reserved for the main mortgage market, but there are far more offers creeping into the “seconds” sector.

2019 got off to a flyer as more and more people see this type of financing as a very efficient way to go forward. Brokers up and down the country are reporting clients wanting to seek alternative ways to raise extra funds than the traditional re-mortgage.

With the promise of quicker completions from the lenders the “seconds” market most certainly looks to have a strong and ever-growing future.

If you are contemplating raising finances in the near future it would do no harm to find out whether this type of funding could assist you. Second charge lending has become a cost-effective alternative to re-mortgaging, completing quicker and in most cases have far cheaper set up costs.

Find out more

We pride ourselves on service, so if you need any assistance or want to discuss a potential deal do call us. Our expert independent advisers are experienced in all areas of lending and look forward to being of assistance.

Steady progress is the theme of the day in the second charge mortgage market. It is becoming more and more of an attractive alternative to the first charge market.

Lender competition is increasing, which is driving product development. A number of lenders are also introducing new fixed rate loans with no early repayment charges.

Service is another area in which competition is hotting up, with more lenders introducing automated valuation models instead of the full valuation or drive-by valuation that had previously been required.

As part of FCA regulation, income verification has become more rigorous, so lenders are focusing on improving other parts of the process to ensure overall service levels are not impacted.

And, of course, with greater competition comes lower rates. At the time of writing, the lowest published rate for a second charge loan is under 4%, which is comparable with some first charge mortgages.

Realistically, it is unlikely rates can be driven much lower but, at current levels, second charge loans provide an attractive solution for clients in a number of situations.

Why a second charge and not to re-mortgage?

There are many borrowers on a lifetime tracker or variable rate so low they would be unable to match their current rate by re-mortgaging. For clients in this situation who want to raise extra money from their property, it can sometimes be more cost effective to use a second charge loan to borrow rather than shift the entire balance onto a more expensive rate.

Some first charge lenders have lost their appetite for debt consolidation and we are currently seeing a lot of demand for second charges in this area, particularly given rates are so competitive. It is so easy to run-up unsecured credit nowadays and we have worked with a lot of people who are near breaking point because of the strain of meeting the monthly payments.

By moving the balances onto a cheaper second charge loan, borrowers can immediately relieve some of the strain while they work towards a long-term solution to manage their debts. But always remember this form of loan to consolidate debt is not always the solution, do speak to a professional independent broker who will be able to guide you in the correct direction.

Need help?

If you would like to know more please make contact and one of our independent advisers will be pleased to assist.