With many people disinclined to remortgage because of low rates, and lender criteria in many cases extremely tough, secured or ‘second charge’ loans have become a lot more popular over the course of 2012.
Unsurprisingly, then, more and more brokers are turning to them, especially now that new lenders that have emerged within the sector, making the products more competitive and offering greater choice.
Here we look at a four examples of problems they can solve in greater depth. All the examples below are real-life case studies, although we have not named the people involved for obvious reasons.
Interest-only mortgage conundrum
A mortgage broker approached us with a client looking to raise £30,000. The client’s main residence was valued at £480,000, and they had a £280,000 interest-only mortgage with a monthly mortgage payment of £758.
Their lender was willing to advance a further £30,000, but only if the client agreed to switch the entire balance to repayment. The effect of this would have been to double the client’s monthly payment amount, to £1,511.
Our solution was to arrange a £30,000 secured loan with a monthly cost of £211, which, at £969, was £542 a month less than what the client would have paid to take the advance from their current lender.
Introducer fee: £1,050
CCJ Alert
An IFA approached us with a client asking for a £5,000 personal loan. When we delved deeper into the client’s circumstances, it was obvious a personal loan was not going to be possible.
The client had acted as a guarantor for a friend on a loan of £5,000. The friend had been unable to keep up with repayments on the loan, which our client had now become responsible for.
If the loan was not repaid in 28 days then a CCJ for £9,000 would have been logged on her credit profile. It also transpired that she had built up £15,000 on credit cards, which was becoming a struggle to manage.
The client owned a property valued at £210,000 with a mortgage of £77,000, and had an income of £40,000. Enterprise Finance therefore arranged a secured loan for the client of £25,000, which cleared all outstanding liabilities. The monthly cost of the loan, which had no up-front costs, was £310 per month.
Introducer fee: £600
Remortgage or secure loan?
An IFA approached us on behalf of a married couple with a property valued at £440,000 and a mortgage of £193,000. They wanted to raise £30,000 to clear some unsecured debt that was costing them £1,800 a month, and a further £17,250 to give to their daughter towards her wedding.
A remortgage was not appropriate, as the couple did not want to lose the great lifetime tracker rate they had on their mortgage. We therefore arranged a £47,250 secured loan, which consolidated all of their loans into one agreement at a monthly cost of £565.
The loan cost nothing to set up, was completed in three weeks from enquiry and the ERC is just one month’s interest after one months’ notice.
Introducer fee: £1,181
New lease of life
A mortgage broker introduced us to a client who owned a flat in central London valued at £900,000, with a £320,000 mortgage. The client needed £300,000 to extend the lease, which was due to end in 22 years.
With an extended lease, the property value would increase to £1.5m – but the client could not get a remortgage from any lender because of the short lease.
This was a classic example of the need for a short-term loan. We therefore arranged a second charge loan for £300,000 for two months to bridge the client to the extended lease.
Once the extended lease was in place, the client easily arranged a £620,000 remortgage as the property’s value had risen to £1.5m.
Introducer fee: £3,000
In summary, secured loans are a valuable addition to any broker’s financial toolbox. They are a very useful alternative to mainstream mortgages, especially with the growing number of products now available.
And crucially, specialist second charge lenders are often able to take a wider, more commercial view than a mainstream lender, which means the deal can proceed rather than fall flat.
