Second Charge Lending
Seconds stand in line for boost after buy-to-let affordability changes
Second charge loans may be a viable option for landlords who are facing tougher affordability calculations from lenders who have upped rental income requirements.
The Mortgage Works (TMW), recently adapted its rental coverage expectations for landlords from 125% to 145% in an effort to tackle affordability pressures being brought in by changes to mortgage interest tax relief in the buy-to-let sector.
Some in the industry believe that this could provide a boost for the second charge market. Landlords looking to raise capital, in some cases for higher deposit requirements, by releasing equity from their properties may find more favourable terms in the form of a secured loan.
Bradley Moore, director of second charge loans at Brightstar, believes this is an opportunity for the sector.
“The continuation of tightening of rental calculations for buy-to-let remortgages is only going to help to drive further business down the second charge route,” said Moore.
“At a time when broker and consumer awareness is already on the increase under MCD (Mortgage Credit Directive), this is great news for the sector.”
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However, Chris Fairfax, managing director of packager Positive Lending, does not believe that the new rental cover calculations will become a widespread practice in the sector and so expects that there will be no impact on second charge lending levels.
“We haven’t experienced many lenders making changes to rental cover with the exception of OneSavingsBank,” said Fairfax.
“Within the specialist sector I believe there would be a reluctance to increase rental coverage requirements.”
TMW also announced that it would cease lending above 75% loan to-value (LTV), removing their 80% product from the market and Kensington Mortgages see this as an opportunity for other lenders in the sector.
“It’s still early days to get a true idea of how these changes will impact the market,” said Steve Griffiths, head of sales and distribution at Kensington.
“However, Kensington still sees an opportunity in the buy-to-let sector for mortgages up to 80% LTV, particularly as we don’t have a minimum income requirement for existing landlords.
“Indeed, we have recently cut prices across our landlord mortgages and are eyeing a number of product developments in the near future which we believe will now attract attention from brokers for buy-to-let clients.”