Barney Drake is chief executive of Specialist Mortgage Group
Ask a mortgage adviser about why clients turn to second-charge mortgages, and you’ll likely hear similar responses almost every time.
However, we’ve seen a host of clients who fall outside of the apparent norms for seconds recently, and who are raising the funding for somewhat different purposes than might be expected.
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For example, it likely won’t have escaped advisers’ attention that there has been an awful lot of talk about cryptocurrencies of late.
In fact, new data from the FCA has suggested that as many as 2.3 million people in the UK hold some form of cryptocurrency, while the rapid rises in value of the likes of Bitcoin and Ethereum have garnered plenty of interest.
That crypto headline-grabbing has even driven some lending in the seconds market, as we have worked with a client who has decided to revamp their property by kitting out their basement with equipment enabling them to mine Bitcoin.
This isn’t just something done on a whim either, the client has a full and convincing business plan, which has enabled them to unlock some of the equity held within their property.
A helping hand
Other clients want to borrow for more personal reasons. Many people have relied on financial support to get through the challenges of the last 12 months, and not just from the government or utility providers or mortgage lenders, but also many people have who have also stepped up to provide their loved ones with a helping hand.
While some have used seconds in order to unlock some of that financing for their loved ones, we are now seeing cases where the borrower received that help from a family member last year and wants to use the money raised to pay that support back.
Flexibility is key
It can be very easy to look at second-charge mortgages as something of a niche market, a form of home loan which delivers well for clients so long as they fall within very strict parameters.
And it’s true that second-charge mortgages are a fantastic vehicle for borrowers who want to consolidate their debts, or raise money for a more traditional form of home refurbishment.
But the cases above – and they are just a couple of examples from many that we have dealt with in recent months – are an excellent demonstration of just how flexible second-charge lending really can be and how it can provide a true option in far more scenarios.
Many advisers will already be very clear on the big selling points of second-charge mortgages, particularly the fact they mean the client does not have to touch their outstanding mortgage.
That shouldn’t be underestimated – with so many clients on 5-year fixed rate mortgages now, remortgaging for a higher sum in order to raise the required funds would mean incurring substantial early repayment charges.
Throw in the risk of having to move to a higher LTV band, and with it a more pricey interest rate, and it’s apparent to all why a second-charge is such an attractive alternative.
Raising its game
But the sector itself has also raised its game to an extraordinary extent just since the start of 2021. In some cases this has been lenders revising the maximum LTVs on offer, or cutting the interest rates charged.
Other lenders have moved to adapt their lending criteria, to broaden the range of borrowers who may qualify for deals.
There has also been significant improvements to the service levels on offer, with lenders across the industry taking a step back to reconsider how they handle cases and identify ways to do so more efficiently.
It’s sent a really positive message, making clear that not only are these lenders still operating, they are actively hunting for business.
That can only be welcome as advisers and borrowers alike find new ways in which second-charge mortgages can help them.