It appears that people are still focused on the past. Back to the days when seconds were not regulated by the Financial Conduct Authority (FCA), rates were high and they were, perhaps fairly, viewed as a product of last resort.
The market has moved on however and so too should people’s perceptions.
Seconds are now regulated, offering the same consumer protection as a first charge, and rates have dropped. In fact, it is not unheard of to see rates a little over 3% now.
Second charges can prove especially important where someone is looking to raise capital and a remortgage or unsecured personal loan are not viable, or even available options.
Some recent articles have focused on customers who have paid high rates and fees, however what isn’t taken into consideration is that the customers taking out a second charge mortgage may not have had many options available to them at the time and they were struggling to secure finance elsewhere.
For example, perhaps the customer was looking to pay a large tax bill, and while asset rich did not have the disposable income to pay for it. Or maybe a customer was looking to restructure their finances, or even wanted to assist their child by helping them get onto the property ladder by raising a deposit.
These are all genuine borrowing needs, yet these customers may struggle to raise finance via a traditional remortgage.
A second charge mortgage can often be the stepping stone that a customer needs to achieve an outcome.
To explain, a customer can use the second charge mortgage in the short term to raise the finance they need, and then remortgage later down the line to clear the second charge on a much lower rate once they are eligible for it.
So rather than being the scourge of society, second charge mortgages can offer customers a viable way of achieving their goals and dreams, and that’s why it is the real alternative to a remortgage, and why at times it can be a better customer outcome.
Behind the finance
Another aspect of this problem that isn’t given enough attention is the reason why people are looking for alternative finance in the first place.
Many mainstream lenders have turned their backs on not-so-perfect customers and have tightened lending criteria, this is despite the fact that many would be creditworthy customers, they just do not fit into a neat box.
Many second charge lenders, while charging marginally higher rates to acknowledge the risk, take the time to understand a customer’s individual circumstances and see the merits of a customer’s case.
Rather than trying to take advantage of a customer’s misfortune, second charge mortgage lenders have customers’ best interests at heart, for example by allowing them to overpay or not using early repayment charges.
It is the role of the adviser to look more holistically at financial solutions for customers and work with them throughout their life, offering them the right solution at the right time
This ensures that the customer is not overpaying for a product that may no longer be suitable for them.
Not only that, by having a relationship with the customer, and ensuring that all financial options are considered, advisers can keep and protect their customers for life.