Brokers provide an update
The wider housing market has encountered significant unrest in recent years, from COVID to the cost-of-living crisis. But has this prompted more interest in second charge mortgages – which allow homeowners to use the collateral in their properties?
Mortgage Introducer reached out to several brokers operating within the space to find out.
Second charge mortgage market performance
Philip Bailey (pictured left), director at Loan, said debt consolidation remains a persistent theme in the financial industry, driven by the consistent need to reduce monthly payments on high-interest credit cards, overdrafts, and personal loans.
“The tightening grip of affordability and criteria regulations imposed by first-charge mortgage lenders has sparked increased demand for second charges, particularly from mainstream, high-street customers,” he said.
Those with good credit scores and substantial incomes, burdened by higher rates on personal borrowing, Bailey added, are turning to second charges for financial relief.
“As such, a notable shift is emerging from the traditional 80/20 rule, 80% direct to 20% via intermediary, for second charges, with intermediaries gradually gaining ground in market share,” Bailey said.
Although the second charge market may not have experienced significant growth in 2023, he said, the expectation is for the market to grow next year.
The landscape, Bailey said, is evolving with the entry of new, well-funded lenders, coupled with rising costs and levels of unsecured debt. He added that the industry is undergoing a reinvention, emphasising the value it provides to consumers.
“As we move through December and look into 2024, the outlook for the second charge market appears robust,” he said.
The confluence of increased demand, new entrants, and a shifting industry paradigm, Bailey said, positions the market for substantial growth, offering both consumers and industry players an optimistic for the coming year.
What are the trends in the second charge mortgage market?
Kundan Bhaduri (pictured right), property developer and portfolio landlord at The Kushman Group, said Uswitch’s recent data release highlighted a notable trend, indicating that 63% of mortgages secured in the same period last year, Q4 2022, boasted a loan-to-value (LTV) of 75% or less.
This, Bhaduri said, implies that a significant majority of mortgage holders have ample equity, providing a safety net for potential second-charge loans in times of financial crisis.
Demand for second charges remains high, with volumes sitting above the monthly average in 2023, as borrowers continue to acknowledge the flexibility of this capital raising tool, according to the Finance and Leasing Association (FLA).
“Leveraging a portion of this equity could empower borrowers to settle existing debts, capitalising on the favourable interest rates associated with borrowing against property,” he said.
A more profound understanding of second-charge mortgages, Bhaduri believes, holds the key to unlocking a potential surge in lending volumes throughout 2023.
Despite lingering hesitations among some advisers, fuelled by misconceptions about these products, he added, the second-charge market has witnessed substantial progress.
Notably, Bhaduri said there remains untapped potential for deeper integration with the first-charge market.
“For borrowers, this presents a strategic avenue for financial flexibility, while for the industry, it signifies an opportunity to bridge gaps and dispel misconceptions,” he said.
The coming year, Bhaduri believes, could witness a significant shift as awareness grows, potentially reshaping lending dynamics and fostering a more robust collaboration between the first and second-charge mortgage markets.
How have you seen the second charge mortgage market performing and what trends are developing within the space? Let us know in the comment section below.
