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Mortgage Vision: Second charges still flexible despite lender caution

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  • 03/09/2020
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Mortgage Vision: Second charges still flexible despite lender caution
Second charge lending is coming into its own despite being impacted by the effects of the coronavirus pandemic and greater lending restrictions, according to Fluent for Advisers.

 

Presenting at the Mortgage Vision event David Paton, business development manager at the packager, noted that the sector had been hit by the lockdown but was recovering.

“Although lender criteria has changed, there are still products available to help clients,” he said.

“The major issue is that the majority of lenders are working remotely and this has slowed down progress of cases coupled with obvious lender caution of which we’re all experiencing to a degree at this time.”

However, he added that levels of enquiries had increased consistently since lockdown was eased and there were several key reasons that second charge loans were increasingly important in the market.

Brokers may want to consider them in cases where borrowers have an exceptionally good existing mortgage which they don’t want to lose – for instance, a base rate tracker.

Another scenario may be where clients are tied into longer term mortgage deals where they would incur hefty early repayment charges.

Second charge could also work where the client is on an interest-only mortgage.

 

Declined by mainstream

However, the largest reason for growth in second large is typically where cases have been declined by mainstream lenders, according to Paton.

In these cases, it is usually either affordability or loan purpose that have caused the issue.

Paton said: “In terms of loan purpose within the second charge, the criteria hasn’t altered – the client can still get a loan for any legal purpose whatsoever – be it, raising money for a tax bill.

“Clearly consolidation or home improvements are the major factors, but any other appetite might be medical bills, school fees, deposit for a buy to let, extending a lease on a buy to let, or any manner of luxury purchase.”

Paton talked through case studies of clients who have used second charge during the pandemic.

 

Scenario planning

In one case, a borrower was looking for a loan for his business; he had the opportunity to purchase the company he worked for at a cost of £250,000.

The borrower’s property was valued at £550,000, with a current mortgage at £20,000.

The scenario was outside of criteria, in part, because the client was going from employed to a business owner, and because of future income levels.

But Fluent were able to find him a five-year fix at 4.95 per cent with no early repayment charges.

In another case, a client was looking to make a luxury purchase of a holiday lodge in Scotland worth £223,000.

The client’s property was worth £700,000 with a mortgage balance of £201,000.

The solution was a loan over 20 years at 4.2 per cent.

 

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