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‘Second charge must be considered in every capital raising case’ – analysis

  • 07/07/2022
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‘Second charge must be considered in every capital raising case’ – analysis
Homeowners looking to borrow extra money are opting for second charge loans over a full remortgage as interest rates rise, brokers say.


The second charge market has reached a post-financial crisis peak in recent months.

Growth in the sector surged by 68 per cent year-on-year, according to Loans Warehouse.

It comes as the Bank of England base rate has increased to its highest level in 13 years, pushing up mortgage costs.

Robert Payne, director at Langley House Mortgages, said he has seen a “notable increase” in second charge enquiries.

He added: “Borrowers want to hold on to their existing rate for as long as they can and may not have the capacity to do additional borrowing with their current lender, which makes second charge options attractive.”


Second charge should be considered in all capital raising cases

For many borrowers it now makes sense to opt for second charge loans, even at higher rates, if they are looking for extra cash for home improvements.

Scott Taylor-Barr, financial adviser at Carl Summer Financial Services, said: “If a client has £250,000 on 1.24 per cent fixed rate deal with three years left to run on it but wants to borrow an extra £30,000 for home improvements, then remortgaging them away to a 3.24 per cent deal – and paying an early repayment charge to the current lender to boot – would be madness.

“A further advance with the existing lender, or a second charge loan is going to be a much lower cost solution for the client in most scenarios. The total debt can then be reviewed at the end of the 1.24 per cent fixed rate, in our example.”

Lewis Shaw founder at Shaw Financial Services, agreed.

“With mortgage rates rising so dramatically in the last four months, remortgaging for home improvements or debt consolidation it’s now cost-effective to use a second charge.

“In addition, given the redemption penalties on many mortgages, if you need to raise additional capital, it may no longer make sense to pay thousands in ERCs while moving onto an interest rate two per cent higher than their current deal.”

Imran Hussain, director at Harmony Financial Services, said second charge should now be “considered for every client who is tied into a fixed-rate mortgage” and looking to raise capital.

He added: “I see second charges being more popular over the next 18 months whilst rates are rising, for borrowers looking to raise capital.”


Second charge used for debts and home improvement

Borrowers are largely using second charge for home improvements, as well as debt consolidation, the figures from Loans Warehouse show.

Payne said: “This could be a sign of the financial squeeze people are experiencing as a lot of the second charge enquiries we are getting are related to debt consolidation to reduce monthly outgoings.

“This short-term solution could become a big problem if borrowers are not factoring in future remortgage plans, as they could be restricting their options if the total secured debt is not considered affordable.”

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