Data from the Finance & Leasing Association last week revealed that the number of second charge mortgages agreed in the three months to June was up by 20 per cent on last year, while the value of those deals was up by 19 per cent.
And there is a host of different factors driving that sharp increase according to advisers, lenders and distributors.
Stagnant housing market giving seconds a boost
Matthew Arena, managing director of Brilliant Finance (pictured), said the “stagnant” housing market had meant more borrowers were opting to refurbish rather than move, while the changes to regulation to push brokers to consider secured loans had also boosted the sector.
And he suggested that there was “no reason why this trend should not continue”, pointing to the uncertain outlook for the housing market and the fact that more brokers are seeing value in second charge deals.
“Secured loan master brokers have really reduced fees to incredibly low levels too. That makes the secured loan offering more competitive and is opening the eyes of mortgage brokers that would not have considered them in the past,” he added.
Product transfers aren’t always best
Paul McGonigle, chief executive at Positive Lending, said that his firm had seen a 20 per cent jump in second charge business, and pointed to several factors behind the rise, including the fact that a product transfer does not always work if the new product is more expensive when the borrower wants to raise capital.
He explained: “We have seen many clients retain their standard variable rate which offers interest-only and then capital raise through a second charge.”
McGonigle also noted that loans were proving popular for businesses, as deposits for additional property purchases or for a gifted deposit for a loved one, adding: “We don’t see any let up in enquiries moving forward.”
Adviser confidence is rising
Darren Perry, head of second charge mortgages at Brightstar, argued that three years on from the Mortgage Credit Directive brokers were becoming more confident at recommending second charge mortgages, and pointed to the fact they are “generally faster and more convenient” becoming an important driver in interest.
He concluded: “Brokers should always think about a second charge mortgage as a potential alternative to a remortgage for clients who are capital raising on their property.
“And for those brokers who are not yet confident in this market or would like access to extra options they may not be able to access directly, I would always suggest working in partnership with a specialist distributor.”
More flexible products
Jon Sturgess, head of sales at Masthaven, pointed to increased flexibility in the products on offer, particularly for the self-employed and contractors as being a factor in the rise in second charge business.
He added: “The specialist market is waking up to the fact that seconds are an option and, at the same time, the high street is failing to understand customers’ needs. The second charge market is filled with complex customers with complex income streams, but specialist lenders are increasingly willing to listen, driving growth in the sector.”