Second charge mortgages – you don’t need to be an expert

Client demand for second charge mortgages is very high at the moment, for a number of reasons.

UK Finance data reports that, in Q2 2023, 88% of mortgage renewals were product transfers, compared to an average of 77% the previous year. As a like-for-like swap, a product transfer doesn’t provide a customer with any opportunity to raise additional capital, but many will still have an appetite to do so to help them achieve what they want to achieve. At the same time, second charge mortgage rates have started to fall slightly, making the route a more attractive option for potential borrowers.

The main areas of demand continue to be to fund home improvements and debt consolidation. With the ongoing squeeze on household finances, many of those looking for more living space are choosing to carry out work on their existing property rather than incur the costs of moving home. The added advantage of this is that home improvements can potentially add value when they do come to sell, or perhaps remortgage at a lower LTV.

We’re also seeing more brokers helping their clients to prepare for the future, which in some cases involves debt consolidation. This can be a sensible tool for a client to use to put themselves in a stronger position to remortgage and overcome this affordability challenge. If a borrower holds a number of disparate debts, they could be paying premium interest rates on each of them with no end in sight.

A second charge mortgage may be suitable to streamline their debts into one monthly amount, and it can help to lower their monthly outgoings as well as decreasing the chance of accidentally missing a monthly payment.

There are obviously considerations when selecting what debts to consolidate, if any, as a lower monthly outgoing could end up being more expensive in the longer term when considering fees for the second charge mortgage and repaying that debt over an extended period of many years.

However, used sensibly and effectively, debt consolidation can be a realistic route for a client to becoming debt free and, used correctly, it can be smart financial planning by eventually paying off the balance of the longer term or open-ended facilities.

Debt consolidation will not be right for everyone, so it’s important to speak to a specialist second charge broker, who can analyse the risks and provide a recommendation as to the most appropriate route forward.

Working in partnership with Brightstar can empower you to engage with the second charge market and offer product to your clients in confidence that you are leveraging the experience and expertise of professional who are immersed in this market day-in, day-out. This means you don’t need to be a second charge expert to open up this route for your clients, you just need to speak to Brightstar.

Georgia Walton, Second Charge Mortgage Specialist at Brightstar Financial

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