Blending first and second charges when mortgages fall short – Walker

A common misconception about second charge mortgages is that they are only used when a remortgage isn’t an option. I’ve spent countless hours speaking to brokers to explain how, far from being a product that should only be explored when a remortgage isn’t suitable, a second charge could actually be the most cost effective option to begin with.

That being said it’s generally always been a case of either/or. Brokers may have mistakenly believed a second should always be an afterthought but nevertheless it has been thought of as an option completely separate to a remortgage. However, in recent years we’ve started to see that change. We are now regularly working with brokers to complete a first charge remortgage and a second charge – simultaneously.

In fact, we’re working on some cases where a second is arranged at the same time as a first charge purchase – with the second used to top up any shortfall on the first charge it is secured against.

Let’s take a look at an example. Your first charge lender has capped the loan at 4.5 x income but there is affordability to borrow more on a second charge. Alternatively the loan-to-value is capped as a result of your clients work profile or age. The application for the first charge can go ahead but a second charge can be used to top it up, ensuring your client receives the necessary figure and both deals can go through.

On complex purchases or remortgages we are finding some great new solutions by arranging a first and second charge to complete at the same time.

At present the market only has a limited number of first and second charge lenders who will lend on the basis of simultaneous completion but it can be done. Blended solutions are the way forward at a time when tightened criteria and a changing society are leaving borrowers crying out for a more creative approach. I’ve no doubt we’ll see other lenders recognising this in due course.