It has been a common misconception for a while that second charge borrowing exists to assist those who cannot obtain a mortgage via the conventional routes through a mainstream lender.
Perhaps pre-credit crunch clients who failed to meet the requirements of a mortgage lender sought a second charge because they felt they did not have any other option. Second charges were viewed as being part of the sub-prime market and, at times, the rates available suggested that they were.
Today, second charge mortgages are in a very different place. For those in the know, second charge is not a fallback option but an absolute day-one consideration for all capital-raising scenarios.
Most brokers want to be confident, for the benefit of their client and to comply with regulation, that they have explored all the available options and that the advice they provide is the best it can be. Interest rates have tumbled over the past couple of years and we now have incredibly compelling rates readily available in the second charge market.
In most instances, funds can also be obtained much more quickly than a remortgage. What is more, a second charge avoids the need for the borrower to pay an early repayment penalty to their first charge lender.
We now have seven lenders that offer second charge loans on buy-to-let properties, with rates starting as low as 5.79 per cent. This will massively assist the growth of the market as more buy-to-let investors look to expand their portfolios. It was only last year that as few as two lenders would consider a buy-to-let second charge. As a result, the rates were not overly compelling.
As new entrants have recognised the opportunity, rates have fallen, criteria have relaxed and the market has started to open up. This means we can help many more clients and offer them something actually worthwhile.
To refer or not refer?
For those of you dismissing second charge as an option, the regulator will accept you making it clear to your clients that it is simply not within your scope of service.
But why would you not want to give your clients all the options? Being on the end of a call from a client telling you they have found a better option via someone else is embarrassing and hard to take. Why put yourself in that situation? We are fast approaching the Mortgage Credit Directive in March and, although it is not going to become compulsory to provide terms for a second charge, not doing so may have much greater significance if your competition is.
We would all like to be deemed the best in the field but you can be this only if you are looking at all the options.
The seconds market is thriving in the lead-up to the MCD as rates continue to fall and loan sizes keep on growing.
We know the European directive will present challenges and we accept that some people will not always view change as positive. But bringing second charge mortgages into the mainstream is all about removing that perception of sub-prime and doing what is best for the consumer.