Much has been said about the march of the second charge sector over the past year. Brokers and clients alike continue to be surprised at how competitive rates are and how, in certain circumstances, it can make better financial sense to arrange a second charge mortgage than to remortgage a property.
Since the implementation of the Mortgage Credit Directive there has been a steady increase in lenders entering the sector. These new players not only serve to reduce annual interest rates through the increased competition they bring but also add value to the second charge proposition through innovation in their products.
The attempt to align first and second charge mortgages continues and will always be aided by similarity on fees and rates. However, for obvious reasons there is only so far that can go.
For lenders, a second charge, of course, poses greater risk than a first charge, so there will always be differences between the rates on offer. That said, with the cheapest published rate starting at just 3.73 per cent and some lenders offering the potential to secure even cheaper rates based on risk, second charges provide a valid alternative for clients looking to raise additional funds against their property.
One of the key contributors to moving the sector forward and into the mainstream is its accessibility. Master brokers are leading the way in making second charges more accessible by creating their own sourcing platforms. This has enabled brokers to demonstrate the suitability of a second charge in place of the traditional remortgage and to recommend the most suitable product to meet clients’ needs.
The main point to consider is that, whatever the most suitable solution may be, the ability to source second charge products for comparison against first charges means consumers receive the best advice — the key being that all options have been explored, not ignored. It all comes back to the fact that, if you don’t ask, you don’t get. By not asking the question, you are left in a rather precarious position.
It is good to see traditional sourcing systems such as Trigold and Mortgage Brain on the journey too. We have to break down the barriers to advisers and consumers getting the information they need quickly — and the more routes to this information the better.
If your habit is to source first charge mortgages all day, every day, we need to change that. If this change does not happen, the likelihood is that your client will find somebody who will offer the compari-son across the full suite of products.
The Brexit referendum result, coupled with the potential rise to the Bank of England base rate, means more clients are looking for the security of a fixed rate over a longer term but with the added flexibility to overpay without penalty.
Not so long ago there was not even a fixed-rate option available, with every second charge product at the lender’s standard variable rate. The fact that discounted and fixed rates have been added to product ranges is testament to the progress of the sector in a relatively short period.
Lenders are also indicating they are keen to innovate further and bring products even closer in line to those offered by first charge players. If you add to that a greater degree of flexibility on affordability, you suddenly open up options that previously did not exist via the conventional remortgage.
Recent changes introduced by the Prudential Regulatory Authority mean we are seeing more buy-to-let second charge enquiries due to the affordability stresses that have been put in place. The changes also affect second charges; however, lenders are introducing new criteria all the time, including ‘top slicing’ whereby a client can include their personal income and expenditure to assist with affordability shortfalls, or even secure the second charge over a number of properties within their portfolio.
Yet again, this clearly demonstrates the seconds sector to be forward thinking and unwilling to sit back and just do what it has always done, despite its small size in comparable terms.
The message here is simple: if you choose to ignore second charges, your clients may well choose to ignore you.
Darren Perry is head of second charge mortgages at Brightstar