Shortage of homes for sale driving second charge growth – analysis

Figures from the Finance and Leasing Association this week revealed that second charge mortgages are continuing to grow at a significant rate. In total, £259m of second charge loans were agreed in the second quarter of 2017, up by 36% on the same period last year. It’s the fourth straight quarter of growth for second charge lending.

Paul Flavin, managing director of Zing Mortgages, (pictured) said that the increase in popularity of second charge mortgages is partly a result of the low numbers of properties currently for sale. Potential buyers are instead opting to stay and improve their property, but with remortgaging likely bringing with it early repayment penalties, second charge offers a “quicker and less complicated route”.

According to the Royal Institution of Chartered Surveyors the number of fresh listings on the market has fallen for seventeen straight months, a trend it described as “sustained deterioration”.

Ben Adams, mortgage and insurance consultant at Bluebell Mortgages, agreed, adding that second charge lenders are more flexible in their approach to underwriting which adds to their appeal.

He said: “It’s easier to get a second charge mortgage, whether that’s down to income multiples or the attitude towards people who have gone self employed and perhaps only have one year of accounts. You’ll find that sometimes it’s cheaper to remortgage, but the fact that you can have the money quickly makes second charge loans more attractive to some borrowers.”

Liz Syms, founder of Connect for Intermediaries, pointed to the Mortgage Credit Directive and how it had raised awareness of second charge loans, as well as precisely when they can be used.

“Packagers and master brokers have also done a lot to promote when it is that a second charge loan can be used and have made it easy for brokers to be sure they are giving best advice and to find the right product.  This has meant that a growing number of brokers feel more comfortable about talking to their clients about this area where in the past they may not have done – or may not have had the right permissions,” she concluded.

Zing Mortgages’ Flavin added that debt consolidation was also a significant driver for the second charge market.

He continued: “We come across people with a high number of credit cards and loans where the total monthly payment makes the mortgage unaffordable. By consolidating the debts into one secured loan, it can dramatically reduce the monthly outgoings to a level where, not only does the mortgage become affordable, but additional borrowing can be released to clear the secured loan.”