Bank of England governor Mark Carney has been dropping hints in recent weeks that a rate rise may be imminent. Indeed, many commentators believe we could see the first increase as soon as next month when the Monetary Policy Committee (MPC) meets on Thursday 2 November.
And experts in the second charge market say a hike in interest rates could have a positive impact on the specialist sector.
“There will still be a large number of mortgage clients who have not changed their mortgage for a number of years due to the prolonged historic low rates,” says Alistair Ewing (pictured), managing director at The Lending Channel. “Once rates begin to move upwards this should stimulate remortgage activity, which will have a natural knock-on effect for demand for second charge solutions.”
Capital raising and payment difficulties
Paul Stringer, director of Norton Finance says the rise will encourage consumers to start looking for better interest rates.
“Many customers have mortgages, loans or credit cards with interest rates higher than the customer could be paying if they switched to a better value alternative,” he says. “Second charge rates are lower than the vast majority of loans and credit cards. Specialist lending should see an upturn in demand as rates rise as many lenders offer good value products to assist customers experiencing payment difficulties.”
Steve Walker, managing director of Promise Specialist Lending is also feeling positive.
“The predicted rise in interest rates should make second charges more attractive as many consumers have been sold fixed rate mortgages – often fixed for five years and they won’t want to remortgage onto a higher rate,” he says. “Consequently, when capital raising, these people are likely to find a second charge preferable as it allows them to retain their lower fixed rate deal.”
Second charge escape route
But Scott Thorpe, director at London Money Loans, says brokers will be key to correctly identifying customer needs and the correct solution.
“No one comes looking for a second charge however we are already seeing increase traffic to our mortgage brokers discussing their current rates and looking to tie-in, so ultimately there may be more deals if the broker is switched on to second charges and it’s the best advice,” he says.
“Again this leads back to education from us within our sector to explain the benefits to the wider industry. The rise in interest rate will not be the main driver for new enquiries but more a contributing factor. Clients continually change their objectives and it is not until they do so that they realise they are sometimes prisoners to a new landscape and that a second mortgage is their escape route.”