The secured loan or second charge market is growing in importance and is poised to become one of the largest areas for growth in the next two years.
There are several important reasons why a secured loan is a viable and dynamic alternative to remortgaging these days.
The average secured loan pays out in three weeks or less from application. An average remortgage takes at least a month. If a client wants to raise money quickly, they are not going to be too pleased if their remortgage is still waiting to complete after they needed the funds.
Ironically, one of the reasons for the popularity of secured loans among brokers is the regulatory environment. With the accent on treating customers fairly, secured loans offer an alternative to remortgaging which is superior in certain circumstances.
Apart from the faster completion time, clients who would suffer through remortgaging either because they would pay penalties to move or would have to remortgage to a higher rate due to a deteriorating credit rating, can consider a second charge to run alongside their mortgage.
Because of the way they are put together, loans carry no upfront costs. Unlike most mortgages, clients are not charged valuation, legal, arrangement, booking or application fees. For all mortgages’ headline rates, it is worth factoring in the actual cost of them, starting with the hundreds of pounds these charges can add up to.
A full remortgage can be lucrative for a broker but on average up to 3% can be earned on a 10,000 loan. Obviously fees earned should be a consequence of providing good service rather than the reason for recommendation but provided a recommendation is client-friendly, which broker would not want to write secured loan business?
All regulated loans – in other words those under 25,000 – now carry no more than a two-month interest rate penalty. This might come as a surprise to some intermediaries, but secured loans now boast some of the lowest early repayment penalties in the market.
Above all, secured loans offer an easy route to raising capital that clients understand. With a simpler application form than for mortgages, no upfront fees to lenders and no valuation and legal costs charged to clients it is no wonder secured loans are gaining popularity with brokers and their clients.
So before reaching for a remortgage, take a fresh look at secured loans – you may be pleasantly surprised.
andy young is managing director of The Business Mortgage Company