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Homeowners look to second-charge mortgages to raise money

New research from criteria search specialist Knowledge Bank shows that homeowners are utilising second-charge mortgages to raise money to invest in buy-to-let properties, home improvements, and to consolidate debt. These three contrasting usages highlight the state of the economic situation in the country.

Knowledge Bank holds the largest database of up-to-date mortgage lending criteria in the UK and its monthly criteria index shows the terms that brokers are actually searching for. These may well be reflected in mortgage completions in two-or three-months’ time.

Capital raising featured in three of the top five most searched terms in the second charge market in March. The reasons for this capital raising varied greatly however. The second highest-searched term was ‘Capital raising to purchase a buy-to-let’, which follows the trend of investors looking to purchase rental properties as the stock market remains volatile and demand for rental property soars.

‘Capital raising for home improvements’ was fourth on the most searched terms’ list. This is potentially due to homeowners looking to renovate, add an extension, or build an office in the garden, possibly as a result of an extended period working from home. Brokers were also searching for ‘Capital raising for debt consolidation’, which landed at number five on the most searched for terms. This suggests there are clients looking to secure unsecured debts against their home to bring all their debts into one place and take advantage of the lower interest rate they will pay.

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The variety of searches in the second charge market appear to be a reflection of the wider economic situation in the UK. Since the start of the pandemic there has been a split, with those in stable employment able to save and invest due to the lack of opportunities to go on holiday or take advantage of hospitality venues; whereas those who have been hit hardest, have struggled financially and need to secure debt.

In the residential market, as the Chancellor announced an extension to the job support scheme ‘Furloughed workers’ was the most searched term for the third month in a row.

Throughout 2021, there has also been consistent interest in ‘Income multiple used for affordability assessment’, and this continued in March. This suggests despite the return of 95% loan to value (LTV) mortgages, home-owners are still looking to maximise the amount they can borrow. For the first time this year however, there was a search in the top five for lenders who would offer a mortgage to people with ‘Defaults – satisfied in the last three years’. This highlights that debt held by some of the UK’s population is not a new problem.

Demonstrating the continued interest in the buy-to-let sector, ‘First-time landlords’ was the top criteria searched by intermediaries for the second consecutive month. ‘Lending to limited companies’ featured in the top five terms searched, and has been a constant since July 2018. This is due to changes set out by the government in the 2017 Budget, including a reduction in the amount of tax relief available for interest on buy-to-let mortgages for individuals. This policy is continuing to change the landscape of the buy-to-let market.

In the bridging sector, ‘Heavy refurbishment’ was in the top five most searched for terms for the first time since December 2020. This potentially is as a result of clients turning to bridging loans to undertake major renovations, most likely extensions or remodels on their homes. A hot topic in the industry, ‘Regulated bridging’ was the top searched term by intermediaries. This could be due to homeowners using bridging finance when a property chain has broken or to purchase a property at auction.

Knowledge Bank operations director Matthew Corker said: “The second charge market clearly demonstrates the current economic divide in the UK at the moment. There are those who have increased their savings through lockdown and are now using a larger deposit to either invest in property, or add to their existing home. But there are also those who have been hit hard, either losing their job or being put on furlough.

“With extensions to the stamp duty holiday and job support scheme announced by the Chancellor during the latest Budget, lenders are continuing to adapt criteria to keep up with the evolving market. With criteria changes coming thick and fast, brokers could spend hours every day searching for the latest criteria, so using a comprehensive criteria search system can save them a massive amount of time and ensure they are providing best advice.”

BY PETE CARVILL

Source: Property Wire

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Post-pandemic changes will lead to growing need for second-charge mortgages

In a year in which positivity has been at a premium, it’s difficult not to feel a little optimistic at the moment.

It has been an incredibly testing 12 months for everyone, but there does appear to be some light at the end of the tunnel with just a few short months until – hopefully – social distancing is a thing of the past.

The impact of the pandemic on our finances will continue to be felt for some time, however.

The fact businesses will take some time to get back onto their feet led to Chancellor Rishi Sunak, announcing at the Budget that the furlough scheme is to be extended until September.

For some businesses, that support is still not enough though, with the Office of Budget Responsibility forecasting unemployment to reach 2.2 million this year.

There’s no escaping the fact that an awful lot of people are going to be feeling the financial pressure and having to make their money stretch further in the months ahead.

Balancing the budgets

Some borrowers may focus their efforts on trimming the usual monthly spending, moving to a cheaper supermarket for example or ditching those subscriptions that they don’t really make use of.

But others will look at their debt repayments, from personal loans to mortgages, and look to their trusted mortgage advisers for help.

Second-charge mortgages will undoubtedly be the solution for some of these clients. One of the most common uses for second-charge mortgages over the years has been debt consolidation.

Keeping track of a handful of different loans, interest rates and repayment dates can be stressful enough when times are good, never mind in a post-pandemic environment.

Bringing them together in one place makes sense, but a traditional remortgage may not be an option due to the risk of incurring early repayment charges or having to move up an LTV band and therefore ending up with a more costly interest rate.

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That’s where second-charges become so useful, as the borrower can tap into the equity they hold in the property, consolidate those various commitments into a single loan at a competitive rate, and leave that existing mortgage deal untouched.

As an industry, we are already seeing a sharp jump in interest in second-charge mortgages. Indeed, recent analysis suggested second-charge lending in February totalled £69.6m, up by 14.4% on the month before.

That corresponds with our own activity and is a clear sign that 2021 could be a bumper year for seconds. And that presents a big opportunity for mortgage advisers.

No longer an afterthought

Second-charge mortgages aren’t the afterthought for mainstream advisers that they once were. Part of that inevitably comes down to the influence of the regulator, ensuring an integral part of the advice process includes evaluating whether a second-charge mortgage could be the answer for your client.

But there is far greater understanding among advisers too of the role that second-charge mortgages can play, and not just for debt consolidation purposes.

A year of home working has inevitably led to many homeowners looking afresh at their properties and how they might be reconfigured to work more effectively as not only a place to live, but to work in as well.

Not all advisers are entirely comfortable with second-charge mortgages though, particularly following the FCA’s ‘Dear CEO’ letter last year which announced its intention to continue closely reviewing the seconds sector, and the advice being given.

That’s where picking the right partner can prove invaluable, whether that’s going through a master broker or working with a lender.

There is no question that you will have clients this year for whom a second-charge mortgage will be the best answer.

Now is the time to ensure you have the right processes in place for handling those cases.

By Steve Brilus

Source: Mortgage Introducer

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