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Second charge agreements more than double in August ‒ FLA

The second charge mortgage market has continued to show signs of recovery with the number of new agreements and value of new business more than doubling compared to the same period last year.

According to the latest figures from the Finance & Leasing Association (FLA), there were 2,314 new second charge agreements in August, just over double the figure from the previous year. Last year, the market recorded 1,134 new agreements for August.

This continues a trend of growth, with 7,054 agreements in three months to August, more than double the figure of 2,761 during the same period last year.

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In the 12 months up to August there were 22,880 new agreements, which was up five per cent on the year before.

The value of new business for August was pegged at £95m, up from £43m during the same month last year but on a par with £102m in August 2019.

For the three months up to August the value of new business was estimated at £297m, and for the 12 months the value was £956m.

FLA’s director of consumer and mortgage finance and inclusion Fiona Hoyle said: “The second charge mortgage market continued its recovery from the pandemic in August. The market has reported more normal levels of new business in recent months which we expect to continue in the final quarter of 2021.”

By Anna Sagar

Source: Mortgage Solutions

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House price jumps make second charges a compelling debt consolidation option

As we head towards the end of the year, many advisers will be hearing from clients who want to get to grips with their debts. The run-up to Christmas often coincides with borrowers taking a step back from their finances, recognising they would like to be paying less for their various forms of credit, and investigating their options for consolidating those debts together into a single monthly payment.

Clients who want to consolidate their debts will have a few options if they want to make use of their property asset, but it’s important for advisers to consider all of those possible solutions rather than simply the one they are most familiar or comfortable with.

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Remortgaging for debt consolidation

One option will be remortgaging, taking out a larger loan so that they can clear all of those existing debts on credit cards, personal loans and the like. They then have just one debt to keep on top of, their mortgage.

It’s certainly a simple option – there will only be one repayment date to monitor, one interest rate to be aware of. But there are a couple of potential downsides that come from the remortgaging route.

The first, and potentially most punitive, is the risk of having to pay an early repayment charge. Advisers don’t need me to tell them that the vast majority of their clients are likely to be on fixed-rate mortgages these days, and more often than not they are lengthy ones. Given the way ERCs are calculated as a percentage of the outstanding mortgage balance, they can easily become a considerable cost if your client happens to be only halfway through a five-year fixed rate. That’s an exit fee that is really going to sting on the way out.

That’s not the only financial hit that comes from remortgaging either. Your client will also have to switch rate too. That’s not a bad thing if they happen to be on a poor deal but given the level of competition we have seen in recent years there’s a real risk that they will have to move to a less attractive rate, particularly if the additional borrowing moves their loan into a higher loan-to-value band. As a result, remortgaging in order to clear those additional debts may mean that not only does the client have to hand over thousands in ERCs, they also move onto a higher interest rate, with a more substantial mortgage balance to boot.

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It doesn’t have to be like this

There is a clear alternative though, in the form of a second charge mortgages. And not only does a second charge offer a different route for borrowers, it actively avoids some of those potential downsides that come from remortgaging.

It’s worth emphasising the fact that a second charge mortgage is secured against the equity the borrower holds in the property. As a result, the original mortgage is unaffected by the loan. That means no concerns over exit fees, moving LTV bands, or shifting interest rates – the client can carry on as usual with that first-charge mortgage, and continue to benefit from the excellent rate that you secured for them.

A second charge stands separate from that original mortgage, meaning there is no unpleasant knock-on effect from raising the sums needed for the debt consolidation.

Rising equity levels

It’s impossible to ignore the considerable growth in house prices that have taken place over the past year or so, off the back of the stamp duty holiday. That tax break has caused huge numbers of would-be buyers to take the plunge and pursue a move, and it’s driven up prices across the board.

In fact, the latest figures from the Office for National Statistics show that the average property price jumped by a massive 10.6% in the 12 months to the end of August, meaning a new average price of £264,000. To put that in cash terms, that’s a rise of around £25,000 compared to a year ago.

And that’s really good news for any borrower considering a second charge for debt consolidation purposes. That price growth means they hold far more equity in their property, and so are better positioned to raise the funds needed in order to clear those debts.

The demand for help with debt consolidation is only going to grow in the months ahead, so it’s important that advisers keep on top of the full range of options open to their clients. If they aren’t comfortable dealing with second charges themselves, then now is a good time to find a second charge specialist to partner with who can help their clients find the best possible funding solution.

By STEVE BRILUS

Source: Financial Reporter

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Majority of brokers see rise in second charge refurbs

An estimated 81% of second charge brokers have seen an increase in demand for finance for home refurbishment projects over the past six months, according to Shawbrook Bank.

Two-fifths (41%) used financing to fund a redecoration project, including fitting a new kitchen or bathroom, and another 41% used finance to fund an extension or loft conversion.

When asked about their outlook on the future, brokers who specialise in the second charge mortgage market were nearly three times more confident on the outlook for the lending environment for the rest of the year, compared to the end of 2020.

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The majority (87%) of seconds brokers were confident in the lending environment when thinking ahead to the remainder of this year, compared with just 30% when surveyed at the end of 2020.

Similarly, 75% said they were confident in the opportunity for business growth when thinking ahead to the remainder of this year – a significant rise from 19% in December 2020.

Gavin Seaholme, head of sales at Shawbrook Bank Limited, said: “The past 18 months have required many of us to spend longer at home than we ever would have before.

“With working, socialising and exercising all taking place within the same four walls it’s no surprise that people are looking to expand or make changes to their homes.

“While for many savings have gone up in lockdown, taking on a big renovation can quickly add up.

“If your client is planning to undertake a refurbishment or extension, large or small, it’s important to discuss all of their finance options with them.

“A number of landlords and property investors continue to rely on personal loans or credit cards to finance their DIY projects, which can be a riskier and more expensive approach to take.

“Understanding your client’s aims for the project as well as their current financial position will all help to inform the pathway they choose.”

By Jake Carter

Source: Mortgage Introducer

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Second-charge optimism is shining through, according to the latest figures

The latest figures for the second-charge market, from the Finance & Leasing Association (FLA), make for positive reading.

It found that the value of new business for March came to £88m, the most positive month for new lending in a year, while the number of new loan agreements is now unchanged from last March.

It is an encouraging demonstration of how the market has picked up from the difficulties posed by the pandemic.

Fiona Hoyle, the director of consumer and mortgage finance at the FLA, said that members of the trade body were “increasingly optimistic” about the outlook for the market, and in my view that optimism is shining through in the way that lenders have behaved over the last couple of months.

There’s no escaping the fact that lenders in the second-charge market are raising their game and revamping, not only by product, but also by the way they lend.

Some are competing on price, unveiling new product ranges that are genuinely eye-catching on rate alone, while others are looking again at their lending criteria and identifying ways to open up their products to groups of borrowers who might ordinarily be excluded from the seconds’ sector.

What’s happening across the board, even from those lenders who aren’t adjusting their products, is a wholesale improvement in the level of service on offer.

Whether it’s greater use of technology or simply a revision in their lending processes, the industry as a whole is doing a fantastic job in looking at how it works with fresh eyes, and finding new, innovative ways of delivering a more efficient and satisfying experience for everyone involved in each case.

Compare the market today to the seconds market we saw just a few months ago, and the difference is extraordinary.

This is a market where the lenders are not just open for business, they have a particularly strong appetite to lend, and are launching products that opens up this sector to a wider range of prospective borrowers.

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The road ahead

This positive approach from lenders would be encouraging enough in normal times. But these aren’t normal times, with the clear expectation that there are some future headwinds.

There are plenty of borrowers whose finances have been somewhat tested over the last 12 months.

Some will have raised debt to keep their heads above water, and with the prospect of more job losses ahead, there’ll unfortunately be a rising number of homeowners in a similar position in the months to come.

For these borrowers, the prospect of cutting the cost of those debt repayments by consolidating those loans through a second-charge mortgage will be incredibly attractive.

That’s a whole swathe of new borrowers for whom a second-charge mortgage may be the most suitable option.

It’s not just borrowers who have had financial difficulties though. We’ve all spent far more time than usual at home over the past 12 months, and there have been an awful lot of conversations across the country about how we could adjust our homes to better meet our new circumstances, particularly for those who are going to be working at home for at least part of the week for the foreseeable future.

Significant numbers of those homeowners won’t want to disturb their existing mortgage, and incur ERCs that come from remortgaging for a higher amount, but have sufficient equity built up in their property, that a second-charge mortgage can adequately access to raise sufficient funds to pay for their intended home improvement project.

Hoyle said that the FLA expects to see a “strong rebound” in the second-charge market over the next year, but frankly I think that may be underplaying it.

The number of people for whom a second-charge loan could help is only going to increase, and this, coupled with a positive approach from the industry’s lenders provides the prospect of promising times ahead for seconds.

By Barney Drake

Source: Mortgage Introducer

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Brokers have been increasingly searching the second charge market

Mortgage brokers have been increasingly searching the second charge market for loans to help customers raise capital in March, Knowledge Bank said.

Three of the top five most-searched second charge criteria terms featured “capital raising” during the month.

The most searched for term in the sector was “maximum loan to value (LTV)”.

However, capital was sought for purchasing buy-to-let (BTL) property, followed by home improvements, then debt consolidation.

In the residential segment, “furloughed workers,” topped the searches for the third month in a row, followed by “maximum age at end of term”.

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“First-time landlord,” ranked first in BTL, then “lending to limited companies.”

Matthew Corker, operations director at Knowledge Bank (pictured), said the pattern of searches “demonstrate the economic divide in the UK at the moment.”

“Some have increased savings through lockdown and are using a larger deposit either to invest in property or add to their existing home. Others have been hit hard, losing their job or being put on furlough,” he said.

“Lenders continue to adapt criteria to keep up with the evolving market,” Corker added.

Source: Mortgage Solutions

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Prime borrowers show growing interest in second charge loans

Borrowers with prime credit ratings accounted for an increased share of second charge mortgage lending in the past six months, according to a tracker by Evolution Money.

The lender divided its customer base into two groups – those with prime credit ratings and those with below-prime scores.

It found that in the below-prime borrowers accounted for 75 per cent of second charge lending by volume between September 2020 and February this year, while prime borrowers accounted for 25 per cent.

The share of lending to below-prime borrowers in the previous six months had been 81 per cent, with 19 per cent of loans going to prime applicants

Across both groups, debt consolidation was the most common motivation for borrowing.

Borrowing increased across the board, with prime customers taking an average loan of £35,726, up from £33,242.

Below-prime customers borrowed an average of £20,588, up from £18,019 in the previous six months.

The average LTV for below-prime borrowers was 74.2 per cent, down from 75 per cent and for prime borrowers it was 77.41 per cent, down from 81 per cent.

Prime borrowers consolidated average debts of £26,657, while below-prime borrowers consolidated an average of £15,277.

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Evolution Money chief executive Steve Brilus says: “In terms of our overall product split over the last year, we have seen a notable uptick in both the volume and the value of second-charges being taken out by those customers with prime credit ratings.

“However, what tends to remain unchanged is the reasons why customers require a second-charge mortgage; this tends to focus on the debt consolidation opportunities it provides, although it’s also been clear through the pandemic period that borrowers also want to use their funding to make home improvements alongside paying off other debts.

“The increase in prime borrowers shows there is a distinct and growing customer demographic who may well have a mortgage need but are unwilling or unable to remortgage their first-charge product in order to secure their funds.

“As you might expect, the average loan amount for prime borrowers is higher and their uses for the money more varied, although we are still seeing most customers taking the opportunity to consolidate and pay off debts, with many also use the cash to improve their existing properties.

“This data – which will be updated every quarter from now on – does show second-charges may have a much broader appeal, especially to those prime borrowers who are not willing to extricate themselves from a first-charge mortgage especially if it means paying a substantial early repayment charge in order to do so.

“Between the two six-month periods we saw a 40 percent-plus increase in the volume of seconds, and with the market environment as it is, we anticipate further increases particularly as advisers work with more clients with such needs and circumstances.”

By Leah Milner

Source: Mortgage Strategy

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