Think remortage? Think second charge mortgage/

In his latest article, Simon Mules explains how master brokers can really help with choosing the right product for your client.

Once upon a time the suggestion was that any loan secured on your home, outside that of your first mortgage, was likely to be called a sub-prime loan or mortgage.

Nowadays, the vast majority of second charge mortgages are granted to customers who have an impeccable credit history and whilst the market caters for customers whose credit history is not as impeccable, you should not lose sight of the fact that the second charge market is a viable and growing option for customers who do not want to remortgage.

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I’m sure if you are a regular reader of Loans Insider you will see many reasons offered by all the lenders that contribute to this magazine, but one reason I’d like to highlight is the expertise offered by master brokers when dealing with debt consolidation.

Far too often, when remortgaging in the world of firsts, there is too little emphasis given to addressing the customers remaining unsecured debt. Advisers in the second charge market are very familiar with assessing the benefits of whether consolidation is important in not just assisting the affordability part of the application (if the unsecured loans are being repaid it will help improve the overall affordability) but also ultimately helping the customer achieve the outcome they are looking for.

Debt consolidation is more prevalent in the second charge market and advisers need to consider whether it would be appropriate for the customer to negotiate an arrangement with their creditors rather than take out a regulated mortgage contract. Put simply, regulation – seen by some as an evil – has helped level the playing field for those that specialise in the second charge market, or should I say those that are prepared to explore all the options available to their customers.

So what are second charge mortgages?

They are a way of raising secured finance on your customer’s home, often very quickly and are sold to your customers by way of an advised sale, asking many of the questions that you would when looking at a potential remortgage and are available for a wide range of purposes. The products, rates and fees are similar to those charged in the first mortgage world in many instances.

Is rate a barrier?

Whilst sourcing second charge mortgages and loans are becoming easier, sometimes the rates being offered become clearer when they jump off the page! I suspect many of you will know immediately the rates offered by high street lenders when looking at the remortgage options for your customers. But do you know the rates offered by second charge lenders?

For prime lending below 65% loan to value (LTV), rates range from 3.73% to 5.56% dependent upon your circumstances; as you move up the LTV curve to 75% LTV rates range from 4.03% to 6.57% and between 75% to 85% LTV rates range from 5.8% to 8.60%.

Using an online sourcing product like www.miloanbroker.com will allow you to compare whether a second charge mortgage is cheaper than a remortgage.

Fees

Early Repayment Charges. There are products both with and without ERCs, similar to the first charge world. The advised sales process should help identify your customer’s needs and any ERC would be clearly shown on the Mortgage Illustration.

Lender/product fees. There are products both with and without these fees, similar to those that are charged in the first mortgage world. These fees would be shown on the Mortgage Illustration.

Broker/advice fees. These fees are variable and discussion with your master broker can help set the most appropriate level. Indeed, if you go directly to lenders you will not be required to pay a broker fee but may face a smaller application fee. All fees will be shown on the Mortgage Illustration.

Products

Similar to the first charge world, there are variable rate loans, discounted loans and fixed rate loans all available on a repayment (capital and interest) basis, normally over a three to a 25-year term. In summary, when you are thinking about a remortgage (think

In summary, when you are thinking about a remortgage (think second mortgage), take time to consider a second and if in doubt, take time to discuss the options with your master broker.