More recently, the sector has seen a slight drop in activity, with recent figures from the Finance and Leasing Association showing new business volumes fell slightly in August, down 15 per cent on the same month in 2022.
However, demand for second charges still remains high, with volumes sitting above the monthly average in 2023 and accounting for £120m worth of business in August alone, as borrowers continue to acknowledge the flexibility of this capital raising tool.
Looking ahead to 2024, it is likely the second charge market will continue its steady march. While there are certainly signs that the UK economy is starting to stabilise, it is unlikely the market will return to its pre-pandemic interest rate levels any time soon.
Chancellor Jeremy Hunt has potentially ruled out any tax cuts in the forthcoming Autumn Statement and the Bank of England is expected to keep interest rates at a higher level in a bid to tackle the country’s weaker growth and persistent inflation.
This means that for those borrowers looking at ways to raise money, taking out a second charge mortgage may prove to be an excellent way of addressing their needs, particularly in situations where remortgaging to capital raise is not feasible or not in the best interests of the client, especially if they still have a few years left to run on their fixed term mortgage.
Instead, taking out a second charge and borrowing against the equity in their home will help to safeguard the preferential rate on their first charge mortgage as well as help the borrower avoid paying any early repayment charges.
Many homeowners will have benefited from the rise in house prices over the last few years, and as a result, are likely to be able to borrow more cheaply than with other credit options, particularly if their house has significantly increased in value.
Tapping into equity
By tapping into the equity in their home, borrowers can then use the money raised by the second charge to consolidate debt into a single more manageable payment and pay off any outstanding credit card or unsecured debt they hold and get back on an even keel.
The capital raised through a second charge mortgage can also be used to carry out home renovations, which can be a useful solution for homeowners looking to create more space, as it is easier and cheaper than moving.
This is particularly relevant in the current climate as predictions of a slowdown in the housing market could lead to fewer people putting their homes up for sale and deciding to extend instead.
In a higher interest rate environment, this may make more sense for those borrowers on a decent fixed rate as they can tap into the equity of their home and use the money to build an extension, garden office or loft conversion. This will allow them to create more space in their home while keeping their first charge mortgage intact.
As with all financial products, second charge mortgages may not be suitable for all borrowers. However, for those clients looking for a cost-effective way to raise finance for debt consolidation or home improvements, a second charge mortgage is worth considering as they offer a fast and flexible option for borrowers looking to raise money quickly without the penalties that can come with remortgaging.