Despite the second charge mortgage market growing in 2018 (surpassing £1bn in 2018[1]), it’s tiny in comparison to the remortgage market (£91bn in November 2018[2]). The seconds market has the potential to be much larger, especially as this form of finance can genuinely serve customers’ needs that aren’t currently being met, such as those with complex circumstances and those looking for an alternative to a remortgage. Whilst Brexit is posing great uncertainty, this could potentially have a positive impact on the seconds market as housing stock is at a record low and “unlikely to improve” as reported by the Royal Institute of Chartered Surveyors (RICS) in March last year. This lack of stock suggests that home owners are remaining in their properties, rather than taking the potential financial risk of moving and are therefore more likely to make home improvements, which is one of the most popular purposes for a second charge mortgage. This is because customers can borrow large sums (up to £2m in some cases), perfect for larger scale improvements such as extending a property.
Also, the instability caused by Brexit has seen a growth in longer fixed term rates for first charge mortgages, with customers hoping to protect themselves from interest-rate rises in the future. This presents another opportunity for second charge mortgages as some lenders, particularly Shawbrook, offer no early repayment charges on seconds, whereas if a customer were to remortgage from their longer term first charge, they are likely to incur penalties.
Aside from the macro-economic factors impacting the seconds market, there is much to be done within the market itself to help it grow. Education is still paramount and must be a key focus for lenders and master brokers alike to demonstrate to mortgage advisers that in some cases, a second charge mortgage really is the better option for the customer. This is especially true where the customer has a favourable first charge mortgage rate that they wouldn’t like to lose, and for those customers who have more complex circumstances, such as the self-employed, contract workers and those who receive overtime/commission that need a specialist lender. Not only that, there is an onus on lenders and master brokers to make the second charge process easier and simpler, something that we at Shawbrook are particularly focussing on in 2019. So, in summary, whilst it’s great news that the market continues to grow, the untapped potential is huge and it’s up to us as lenders and intermediaries to make the most of this opportunity. Best of luck to everyone in 2019.
[1] Source: https://www.ukfinance.org.uk/data-and-research/data/mortgages/lending-trends
[2] Source: https://www.fla.org.uk/media/news/second-charge-mortgage-market-reports-volumes-up-by-21-in/