‘Disregarding second charge could bring higher long-term costs for brokers’ – Mercantile Trust

Rising interest rates, soaring inflation and the increased cost of labour and materials has led to a squeeze on affordability for many borrowers. Equally, higher mortgage costs have also strangled the profit margins of many buy-to-let landlords, most of whom have been forced to re-evaluate their property portfolios.

In the current economic climate, being presented with challenges like these has become increasingly commonplace for brokers, and many have found themselves having to work harder than ever to seek out appropriate lending solutions that suit the varying needs of each individual customer.

In many cases, this may involve exploring unfamiliar areas of the mortgage market such as the specialist lending sector, which has seen significant growth over the last few years as demand for more tailored and niche mortgage products continues to grow as the effects of the pandemic and subsequent global economic challenges start to play out.

Yet for buy-to-let landlords in particular, the specialist lending market, and more specifically, the second charge buy-to-let market, has always been a viable solution when seeking to quickly raise capital as it offers an efficient and flexible funding solution for those in urgent need of finance.

In particular, second charge mortgages act as an effective financial planning tool for landlords seeking to raise capital but reluctant to lose the preferential rate on an existing first charge loan, as it enables them to keep their existing mortgage in place but still tap into much-needed equity by taking out a second charge buy-to-let loan on any existing properties.

This money can then be used to carry out any property renovations or extensive refurbishment plans, pay off a tax bill or the purchase of another property. In addition, the streamlined underwriting process means funds are typically released within three to four weeks, sometimes even within days, which makes the whole process faster than remortgaging. This is particularly attractive in the current economic environment where rising interest rates have seen product offerings withdrawn at a rapid pace.

Brokers not up to speed on second charges will be at ‘disadvantage’

As with all types of product offering, the lending criteria on second charge mortgages varies between providers. Mercantile Trust offers buy-to-let second charge loans of up to 75 per cent loan to value (LTV) with a minimum loan value of £10,000 and a maximum of up to £250,000. Mortgage terms range from between three to 25 years to both individual and limited companies.

If brokers aren’t up to speed with second charges, then they will be increasingly at a disadvantage. Over the coming year, it is likely that mortgage brokers will encounter a growing number of clients with capital raising needs who are facing financial difficulties.

Although mortgage products are available, the primary issue in the mainstream market is one of approval. Disregarding second charge options may lead to higher long-term costs for brokers. The demand from borrowers doesn’t disappear just because a remortgage is not possible or suitable at the moment; these borrowers will seek out intermediaries online who are willing to explore second charge options.

Essentially, the best brokers will understand second charges, make sure to review supplementary sales to guarantee sufficient protection for the borrower and schedule follow-ups to reevaluate the possibility of a remortgage at the appropriate time. That’s what keeps them at the top table.