Gary Bailey, sales director at specialist lender Together, looks at opportunities and challenges in the second charge mortgage market.
Growing numbers of people are opting to take out second charge mortgages, also known as secured loans, to finance anything from debt consolidation to home improvements and holidays. The market shows no signs of slowing; experts from GlobalData are predicting it will surge in value from £1.16 billion in 2016 to more than £2 billion by 2020. Changes in regulation have led to greater protection for the consumer and there is now a requirement, under the Mortgage Credit Directive (MCD), for brokers to make customers aware of second charge mortgages and to consider them as an alternative to remortgages, which will help drive lending. Continued growth in the home improvement market is also expected to
give this sector a boost over the next few years, as more customers take out second charge mortgages to finance their latest projects. At Together, we often find that these kinds of secured loans can be an ideal solution for customers who may not want to take a further advance from their existing lender. The borrower can choose a term to suit, which can be an important factor, and they can benefit from a wide range of options. For example, they may be attractive to older customers who may not be able to get finance from mainstream lenders or those with complex income streams or who wish to use a non-standard property as security.
One example could be a customer who is a salesperson in a reliable and long-term commission-based employment, or the parents of a young family working multiple part-time jobs. In these situations, and many more like them, it might be difficult to obtain a remortgage from a high street bank, but a second charge could provide the funding needed. We weigh up each person’s history and put their borrowing needs into context, in line with our philosophy of common sense lending, rather than adhere to the strict criteria often relied upon by mainstream lenders.
According to our own research, second charge mortgage customers are coming to us from many diverse backgrounds.
The largest segment (29%) of Together’s secured loans went to people from older working families, according to the latest customer data. These customers are usually in employment, with good savings and investments and own their own home. Couples on the road to retirement make up 19% of our second charge mortgage customers. Typically, they are married and over 50, and are either retired or nearing retirement, with a good level of savings and investments, or good pension incomes. High income professionals are our third largest group of customers (10%). Our research shows they are usually middle- aged, with high incomes – maybe one or both parents are in professional careers – and who have built up substantial savings and investments. According to our customers’ responses, they are keen to seek out the best product for them and often use digital channels to manage their finances. We attract a higher proportion of people from older working families and high income professionals, compared to the UK population base, and there’s clearly an appetite for second charge mortgages among savvy customers from all walks of life.
However, recent research carried out by Together highlighted that many are completely unaware of second charge mortgages. In fact, 79% of those surveyed didn’t know what they were. Brokers could help raise awareness in this area by helping their clients look at all the options available to them and helping them to choose the best one to suit their needs. Under the Mortgage Credit Directive rules, which came into effect in March 2016, brokers need to decide whether they want to advise on second charge mortgages.
If they don’t, they will need to bring this to their customers’ attention so they are aware it is an available option, even if it isn’t one offered by that particular broker, and may decide to partner with second mortgage specialist to ensure the customer is provided with the right outcome..Ultimately, we need to work together across the industry to raise awareness and deliver more choice for customers.