Post-pandemic changes will lead to growing need for seconds

Steve Brilus is chief executive of Evolution Money

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.

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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.

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 like Evolution who can offer support with the advice process too and ensure everything is taken care of from a compliance perspective.

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.