When a home owning customer approaches you for a large loan, is a remortgage still your ‘go-to’? Do you ever consider whether a second charge mortgage might be a better option? If a remortgage is your first port-of-call it is not perhaps surprising, as the value of the market stood at £91bn (12 months to Nov ’18). By comparison, the second charge mortgage market is a mere drop in the ocean, standing at just over £1bn (12 months to Nov ’18). Whilst in many cases a remortgage is still the more suitable and affordable option for your customers, this isn’t always the case. Sometimes, a second charge mortgage offers the better outcome, however, as the figures suggest, it is often overlooked.
Here are seven reasons why you should be considering a second charge for your customers:
- No Early Repayment Charges (ERCs): In many cases, customers who choose to remortgage would incur an early repayment charge should they wish to exit their deal early. At Shawbrook we do not have ERCs and can therefore offer your customers full flexibility should they wish to repay their loan before the end of their term.
- Protect your customer’s preferential rate: By remortgaging your customer will lose their existing first charge mortgage rate. Not an ideal scenario for those on a preferential rate, or those with an interest-only deal that they wouldn’t like to lose. A second charge mortgage, on the other hand allows your customers to keep their existing first charge deal in place and raise the finance they need.
- Purpose of the loan: Unlike remortgaging, second charge mortgage lenders can offer more flexibility in terms of what the money raised can be used for, such as to pay a tax bill or consolidate debt above £30,000.
- Inability to obtain a further advance: You may find some customers who are unable to secure a further advance from their existing lender. In this instance, a second charge mortgage lender may help your customer raise the finance they need.
- Complex customers: If you have customers with more complicated circumstances, such as; contractors, people with numerous income streams or who are self-employed, they may find more options with a specialist lender that has the capacity to review the merits of their case.
- Rehabilitation: A second charge can help rehabilitate your customers with a poor credit rating. If you have customers that have historically made their repayments promptly, but have fallen onto bad times, perhaps due to illness or redundancy and have been unable to fulfil their commitments, a second charge mortgage can help them to consolidate their outgoings into a more manageable monthly repayment. This should help to improve their credit rating, giving them the opportunity to switch to cheaper funding in the future, should they wish.
- It’s the law: The regulation states that mortgage advisers must disclose a second charge as an alternative finance option where a customer is looking to capital raise on their existing mortgage.
Hopefully, we have convinced you to look more closely at second charges. If so, what now? You can submit your second charge mortgage business direct to us if you are with one of the mortgage network or clubs on our panel. Alternatively, if you’re unfamiliar or lack confidence when it comes to second charges, why not speak with a broker who specialises in second charge mortgages and will work directly with us on your behalf and package the case. Specialist brokers have in-depth knowledge of the various second charge mortgage products available, have existing relationships with lenders and will be able to recommend the best outcome for your customers. Please visit our Place Business page to see who we work with.
 Source: https://www.ukfinance.org.uk/data-and-research/data/mortgages/lending-trends
 Source: https://www.fla.org.uk/media/news/second-charge-mortgage-market-reports-volumes-up-by-21-in/