Seven deadly sins of failing to spot a second charge customer

1. Customer attrition

If you don’t offer second charges, you could potentially be sending your customers to your competitors. Customers need to be made aware that a second charge could be more beneficial for them – and if you don’t offer this level of service, they are very likely to enlist the help of our technological friend Google to help them to find an adviser who does. As a result, not only could you lose your customer, but ancillary product sales and future business could be lost too.

2. Forced product change

Borrowers with an interest-only mortgage often think that the only way to obtain further credit is by switching to a repayment option. For many, this could potentially make their monthly repayments unmanageable. A second charge mortgage allows the customer to borrow additional funds without interfering with their existing mortgage.

3. Your customers are hit by early repayment charges

With interest rates at a historically low 0.5% and speculation about rates still uncertain, some customers will want to move to a fixed rate. However, a fixed rate mortgage will often carry early repayment charges that can cost customers thousands of pounds in fees.

4. Customers who want to consolidate over £30k

It has become increasingly difficult to find consolidation loans over £30,000 on the high street. Second charge loans allow customers to consolidate debts over a longer term than an unsecured loan with a shorter term than their first charge mortgage, whilst still reducing monthly outgoings.

5. Will your customers remain mortgage prisoners?

Self-certification mortgages were banned in 2014 following the Mortgage Market Review, but nearly half of all mortgages taken out between 2007 and the first quarter of 2010 were advanced on this basis, leaving many consumers as ‘mortgage prisoners’ trapped on very high interest rates. These customers won’t be able to get any more funding on a self-certification basis – and their earnings probably won’t fit lenders’ general criteria – but second charge loans could be an option.

6. Self-employed could seek funding elsewhere

If a customer has recently become self-employed, he or she will be eligible for a second charge mortgage. This is great news for customers who have had their applications for other types of mortgage loans rejected due to lenders needing extensive proof of income. With second charge loans, lenders will take into account all of the customer’s income, including buy-to-let rental yield, foster care payments, and more.

7. Missed opportunities to credit repair

Many customers may have a poor credit score through no fault of their own, often after a period of unemployment or divorce. For these customers, second charges can often be the best option, as these loans could enable them to source funds which would otherwise be unavailable.

Second charges have changed significantly over the last few months and can normally be turned around in less than two weeks, as Electronic Identification (EID) can be used to satisfy Know Your Customer requirements and a valuation isn’t always necessary.