Five Good Reasons

Jeremy Law, managing director, residential mortgages – Shawbrook Bank, makes the case for second charges mortgages

When customers approach you for finance where a personal loan isn’t suitable, what is your first thought? A remortgage? This is quite likely as the size of the remortgaging mortgage market stood at around £10 billion as of October 2017 (source: CML). What about a second charge mortgage? In comparison, for the year 2017 the second charge market stood at just £1 billion (source: FLA). Whilst there is no doubt that in many occasions a remortgage is the more suitable and affordable option for your customers, this isn’t ALWAYS the case. Sometimes a second charge mortgage is a better option, however as the figures suggest, it is often overlooked. Today I’m here to make the case that second charges have a definite place within the refinance market and must be something that you consider for your customers.

Five reasons why you should be considering a second charge for your customers:
1. It’s the law: – it’s regulation to disclose a second charge as an alternative finance
option where a customer is looking to capital raise on their existing mortgage.
2. Protect your customer’s preferential rate: We recently had a case where a customer had a fixed rate on their first charge mortgage of 3.3%; however, they needed to raise £25,000. If they had remortgaged they would have lost this rate, gone onto a higher rate and paid early repayment charges. A second charge mortgage allows your customers to keep their existing first charge in place and raise the finance they need.
3. Purpose of the loan: Unlike remortgaging, second charge mortgages offer more flexibility in terms of what the money raised can be used for, such as to pay a tax bill or consolidate debt above £30,000.
4. Inability to obtain a further advance: We looked at our own data and discovered that most of our business sits behind the main high street lenders. This indicates perhaps an unwillingness of these lenders to give their customers a further advance, which is the reason why they turned to a specialist lender, such as Shawbrook to obtain the finance they require.
5. Rehabilitation: A second charge can help rehabilitate your customers with a poor credit rating. If you have customers that are good payers but have fallen onto bad times, perhaps due to illness or redundancy and have been unable to fulfil their commitments, a second charge mortgage can help them to consolidate their outgoings into a more manageable monthly repayment. This should help to improve their credit rating, giving them the opportunity to switch to cheaper funding, such as a personal loan, in the future.

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So, hopefully I have convinced you to look more closely at second charges. What now? If you’re unfamiliar or lack confidence when it comes to second charges, here’s where specialist brokers such as Y3S come in. They have in-depth knowledge and relationships with lenders and will be able to recommend the best outcome to your customers.