Recent restrictions on lending, which have been caused by several challenges in the financial markets, along with global instability, have opened a door for alternative funding options for clients while standard lending is stymied.

I went many years without much need or use for second charges (at least for my clients), as the high loan to values (LTVs) and higher affordability were available on the mainstream buy-to-let (BTL) and specialist markets due to the low interest rate and interest coverage ratio (ICR) regime we lived in for many years.

However, this has all changed. A recent example was to assist my developer client exit their development project, which had run over budget and schedule. They needed to cover a shortfall to give them time to sell up to pay everything off. We managed to put a small second charge on another property they owned to release some funds to pay the development funder back.

Another example was for one of my BTL portfolio clients who is remortgaging some of their portfolio that has come up for renewal. The current ICR requirements do not allow them to get close to the amount they have outstanding. A second charge or two across some other properties allowed them to pay down the loan required to fit on the current available lending options.

The above examples are different to the typical use of a second charge on a client’s main residence for home improvements or debt consolidation.

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So what are the second charge lenders saying?

Lenders are approaching this area with positivity and competition.

Firstly, there are a few new lenders in the market. I spoke to a principal of one of the new lenders. Their explanation for coming into the second charge market now was their perception of reasonable risk lending with high returns. An experienced lender in the bridging finance space felt that the space was too crowded to make a tangible difference and a tidy profit.

Other bridging lenders seem more than happy to take a second charge if it will help the main deal go through with the comfort being they have the main deal anyway, so this just de-risks them.

They have embraced technology to help them do this, with the increased use of automated valuation models (AVMs), title insurance or reduced legals to get it through quickly.

 

What is in it for us brokers?

For me, the tangible benefits are being able to get a deal through for my clients that would not be possible with the current challenges with ICR covers and time to get sales done.

It is not an easy market currently, so anything that lenders can do to assist us brokers to look after our clients is a good thing.

Anything we can do to help guide our clients through the choppy seas is also a good thing.