Second charge lending has a number of uses and one of the advantages of this type of loan lies in its flexibility.
It may be the case that those who need to raise funds are not aware they can do so through a second charge which is, of course, where advisers and brokers come in.
Understanding the type of scenarios in which this kind of lending can be applied may also help advisers become more knowledgeable about how and when to recommend second charge lending to their clients.
This type of lending can be suitable for a far wider range of situations than many realise.
“A second charge mortgage provides an extremely useful alternative where consumers want to raise additional funds but do not want to change their existing first charge mortgages – especially if there would be additional costs in doing so,” suggests Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association (FLA).
For example, she explains it could be used to fund home improvements, for loan consolidation and paying for a deposit and removal costs for a son or daughter moving into their first home.
Property ladder
Parents are increasingly helping their children onto the property ladder by lending them money for their first home as young people find themselves stuck in a cycle of renting and being unable to build up enough of a deposit.
According to research from Legal & General and economics consultancy Cebr, finds parents, or the Bank of Mum and Dad, will be involved in 26 per cent of property transactions taking place in the UK market this year.
The findings show parents will lend over £6.5bn in 2017, up from £5bn in 2016, providing deposits for over 298,000 mortgages, and helping others to purchase homes worth £75bn.
Peter Williams, sales director at John Charcol, acknowledges this trend is playing out among his customers.
“We have had a number of cases that have released equity to help children get on the ladder and remortgaging a really low rate was not best advice,” he recalls.
Another of the main reasons for applying for a second charge is for credit purposes, particularly if those are fairly urgent or there is evidence of poor credit history.
Mark Dyason, managing director at Thistle Finance, explains: “The clients most likely to benefit from a second charge are those looking for smaller amounts of funds where the main mortgage is on an historic term base rate tracker product, those who need a slight stretch on affordability or where the credit issues are not catered for from the first charge specialist market e.g. current mortgage arrears.”
He has helped a couple of clients in these types of situations to take out a second charge when it may have seemed they had very few options.
