Caroline Mirakian
Sales & marketing director – mortgages,
United Trust Bank
The most recent Finance & Leasing Association figures for second charge mortgage lending, published in November, show that, while new business written in September was 25% down on the year before, new business across the previous 12 months was only 6% lower.
Lenders are still collectively writing well over £100m of seconds a month — £109m in September, in fact — which used to be a benchmark for a healthy market. So, given the interest rate pain we’ve been dealt since October last year, and high inflation taking larger chunks out of consumers’ expendable incomes, I would say that’s a pretty positive result for the market overall.
A swift second charge may be music to the ears of a customer who really needs the money
And there’s more good news with the Office for National Statistics announcing that inflation has fallen to 4.6%. The cost of living is still going up, but half as quickly as a year ago, and wages are closing the gap too, on average increasing by 7.9% in August, according to Statista. It would be foolish to call the end of the cost-of-living crisis just yet, but could that be a small light at the end of the inflationary tunnel?
Resilience
The past few years have shown the resilience of the second charge market, which has grown to around £1.5bn a year. However, while there are many more brokers who are very comfortable to consider seconds in the right circumstances, I don’t think that can be said for the whole broker community.
And that gives me confidence that 2024 is going to be a growth year for the industry. Let me tell you why.
Giving customers more than one solution may be all it takes to distinguish a great broker from their competitors
Homeowners who managed to get a low fixed-rate first charge mortgage before the Bank of England started to ramp up the base rate will be wise to hang on to it. But there are several factors that can drive homeowners to want to release equity from their property.
Consolidating debt to reduce monthly outgoings could be the difference between being able to stay in their home or having to sell up if their outgoings outstrip their income. And, if their first charge is already on a good rate, remortgaging to a higher rate may not be their best, or even a viable, option.
Although second charge interest rates are typically higher, reflecting the greater risk, the blended cost of a customer keeping their main, lower-rate mortgage and adding a higher-rate second charge, to release equity, may well result in a lower total monthly cost than can be achieved by remortgaging the whole lot on to current first charge rates.
Lenders need to keep educating brokers on the benefits of second charges. Many brokers are still a bit fearful or feel that these are a product of last resort
Customers may also decide to take out their new second charge for a longer term than remains on their first charge, to keep monthly costs down.
If the customer is releasing equity to consolidate debt and relieve the pressure of the rising cost of living, securing the lowest monthly repayment could be a real advantage.
In addition, the speed at which a good second charge lender can agree, process and then pay out a second charge mortgage is often far quicker than the time taken to remortgage. Given that, when a customer decides they really need the money, they will want it as quickly as possible, a swift second charge may be music to their ears.
While there are many more brokers who are very comfortable to consider seconds in the right circumstances, I don’t think that can be said for the whole broker community
As an industry, lenders need to keep educating brokers on the benefits of second charges. Many brokers are still a bit fearful or feel that these are a product of last resort. Despite the Mortgage Credit Directive coming into force in 2016, I think on many occasions brokers immediately recommend a remortgage without fully considering the benefits a second charge might offer.
There may also be a feeling that, while consumers readily understand what a remortgage is, seconds take more explaining and possibly more reassurance that they’re not some dubious, expensive loan where lenders can increase rates whenever they like. Those perceptions are a hangover from 20 years ago.
One-to-one training
There is a huge variety of useful information and educational material, with many lenders very happy to provide one-to-one training to help their broker partners grow their business. And, of course, there are the master brokers, who are happy to obtain the referral.
Lenders are still collectively writing well over £100m of seconds a month — £109m in September, in fact — which used to be a benchmark for a healthy market
Second charges are a useful addition to a broker’s toolkit. Incorporating them fully into their range of services and expertise can help not only to diversify their revenue stream but to demonstrate their ability to provide comprehensive financial solutions.
Just suggesting to a potential client that a second charge could be an alternative to a remortgage may be all it takes to elevate their service above that of many of their peers.
Giving customers more than one solution may be all it takes to distinguish a great broker from their competitors and convert them into a trusted adviser who will be returned to time and time again.
