Seconds come of age

The growth of the second charge mortgage market continues unabated with rising interest rates, soaring inflation and continued political and financial volatility helping to drive up business volumes in the sector as brokers and homeowners start to acknowledge the market’s potential.

Over the last few months, Norton Broker Services has seen a significant rise in enquiries from brokers regarding second charge mortgages, all seeking alternative capital raising solutions to remortgaging for their clients. In many cases, these brokers are navigating the sector for the first time, while others are more familiar with the opportunities the market offers.

The uptick in calls comes at a time of increased uncertainty in the mortgage market and the wider economy, with borrowers locked into attractive fixed rate mortgage deals and seeking additional capital, reluctant to lose their preferential rate by remortgaging.

The increase in demand for second charges appears to be industry wide, with recent figures from the Finance & Leasing Association (FLA) showing that new business volumes in the sector hit an all-time high in August, rising 5% on pre-pandemic levels and accounting for £153 million, an increase of 61 per cent on the same period last year.

The boom in business is no surprise given the fact that rising interest rates has made the prospect of remortgaging unappealing for many, particularly those homeowners who took out a fixed rate mortgage in the last few years.

To remortgage now would not only result in the loss of an extremely attractive interest rate and a significant jump in mortgage repayments, it would also mean they would incur further costs in the form of early repayment charges.

Norton has long championed the use of second charge mortgages as a means of capital raising for homeowners looking to gain access to funds quickly, either to consolidate existing debt or to carry out home improvements, and it would seem that brokers are finally starting to realise the market’s potential in helping clients achieve their goals.

In fact, the FLA figures show that 54% of the new agreements in August were for the consolidation of existing loans and 15% were for home improvements, with a further 25% earmarked for both loan consolidation and home improvements combined.

For homeowners who have benefited from the rapid rise in house prices over the last few years, taking out a second charge mortgage can be a useful tool to consolidate debt as they may be able to borrow more than with other credit options, particularly if their house has significantly increased in value.

Similarly, for those homeowners looking to create more space, a second charge loan can offer a solution by providing the option to extend, which is easier and cheaper than moving. This is particularly attractive given continued speculation of a market slowdown, which may result in less properties for sale.

In a higher interest rate environment like the one we are currently experiencing, it may make more sense, and be the best advice, for borrowers on a decent fixed rate to take out a second charge mortgage, rather than remortgaging, so it is worth exploring all avenues when advising your client on their options.

Admittedly, second charges may be unfamiliar territory for some brokers, but this is where companies like Norton Broker Services can help. By referring your client to us, we can help by conducting the transaction on your behalf and ensuring your client gets the best deal. This will leave you free to get on with the job at hand, safe in the knowledge that all your clients’ needs are being addressed.