According to Mortgage Solutions’ latest poll, which asked brokers about their strategy regarding second charge mortgages, another 15 percent on top of that said they did plan to sell more, but would be obliged to involve a third party in the transactions.
About a third, or around 35 per cent, said an increase in second mortgage loans was not on the cards.
The survey’s results supported the views of analysts who said the second charge mortgage market was poised for further recovery after sliding during the pandemic.
As homeowners braced for a stark rise in the cost of living, brokers and lenders were predicting further growth in second mortgage borrowing by people who, after spending time working from home because of the pandemic, now felt the urge to make improvements.
Other factors coming into play include changes in customer circumstances, the upcoming expiration of a high number of mortgage products and the increasing desire for long-term fixed rates.
Growth in the market
Figures released in February by the Finance and Leasing Association (FLA) show that second charge mortgage business grew by 36 per cent in December and by 44 per cent overall in 2021.
The FLA said there were 25,877 new agreements for all of 2021, which was valued at £1.11bn.
However, it said this was still down compared to 2019 as new business was 16 per cent lower by value and 14 per cent lower by volume.
Other recent data from Loans Warehouse showed £118m in second charge lending in December 2021, which is 76 per cent up on the same period in 2020. For all of 2021, it said, second charge lending amounted to £1.18bn, topping £1bn for the first time since 2019.
Brokers looking for second charge mortgages ‘should be higher’
Caroline Mirakian, sales director second charge mortgages at Pepper Money, said: “It’s very pleasing that over half of brokers are ready to sell more second charge mortgages to close any remortgage affordability gaps, but really this number should be higher.”
She added: “To give customers the best possible chance of having the most suitable option for capital raising, brokers should be considering a second charge mortgage alongside the other choices every time.”
Pepper Money recently gained regulatory approval to complete its integration with Optimum Credit, three years after its initial purchase, as it looked to expand in to the second charge mortgage space. At the time of its acquisition, Optimum Credit had a second charge loan book worth over £450m.
As a second charge mortgage is a secured loan that uses the equity in a home as collateral, it is not without risk as borrowers who fail to keep up with payments could lose their homes.
“It won’t be the most suitable avenue on all occasions”, Mirakian said, “but it will be right for many customers.”
Brokers ‘more open’
Tony Marshall, managing director at the London-based second charge lender Equifinance, said he was not surprised by the poll’s findings because they supported its own research which said brokers were “more open” to using second charge mortgages.
He said he was seeing “a clearer recognition of the value that a second charge mortgage can bring to customers”.
Marshall added: “It seems we are at last moving away from remortgaging being the default choice for capital raising.”
However, as every case must be taken on its merits, Marshall said, the clients’ circumstances must be “fully taken into account before deciding whether to remortgage or use a second charge loan”.
Looking at the year ahead, he said, “the emphasis is very firmly on improving or extending existing homes as house prices continue to increase and put off hopes of moving home for many. We expect that second charge mortgages will play their part.”
He continued: “Many people may not be comfortable with the costs of a remortgage just to fund a new bathroom, kitchen or extension when they can make use of a second charge solution, particularly if their circumstances have changed and a remortgage leaves them with a more expensive first charge mortgage than their existing arrangement.”
Jimmy Allen, Norton Broker Services’ broker account manager, said it was “encouraging” that more brokers were looking to sell more second charges and that it was “clear from our experience so far this year” that more brokers were “open to considering this type of lending than ever before”.
He added: “As has been widely reported, affordability is an issue for more and more borrowers, plus for some, changes to employment and/or income during the pandemic will affect their ability to remortgage and so the use of a second charge can be an alternative option. Also, some borrowers will be keen not to touch their existing mortgage, especially with rates increasing, so again a second charge may be more appropriate.
“As experts in second charges, we have been doing this for over 40 years, we understand that some brokers would prefer to refer their clients to us than advise on the second charge themselves, possibly due to their inexperience on this type of lending whilst wishing to ensure their client obtains the most appropriate and best deal available. In such instances, the client will always remain the original brokers, which is paramount.”
Matthew Arena, managing director at Brilliant Solutions, said: “We are seeing a greater awareness amongst advisers and networks alike that secured loans can be an incredibly useful tool. It is taking time but the message is getting to more and more advisers every month. Many borrowers find remortgage options limited if they have built up unsecured debt through the pandemic and wish to consolidate now they are back on track at work. That scenario has certainly picked up which is understandable given what people have been through in the last two years. There are other positive drivers too but the demand is being led by adviser awareness and a lack of viable alternatives from first charge lenders.
“The secured loan distribution market is also maturing. Fees are falling and preconceived ideas about the sector are being turned on their head as the networks and brokers embrace options that can make a real difference to borrowers. Things have got a lot more complex in work and in life and the flexibility offered by secured loan lenders is giving borrowers options that are more expensive or unavailable through other avenues.”