It’s been a common misconception for a long time now that second charge borrowing is there to assist those who cannot obtain a mortgage down the conventional routes, through a mainstream lender.
Perhaps pre-credit crunch clients who failed to meet the requirements of a mortgage lender sought a second charge as they felt they didn’t have any other option. Second charges were viewed as being part of the “subprime” market and at times the rates available would suggested it was.
Today second charge mortgages are in a very different place. What we are seeing now is a real shift whereby, for those in the know, second charge isn’t a fall back it is an absolute day one consideration for all capital raising scenarios.
Most brokers want to be confident, for the benefit of their client and to comply with regulation, that they have explored all of the available options and that the advice that they provide is indeed best advice. Interest rates have tumbled over the past couple of years and we now have incredibly compelling rates readily available in the second charge market. In most instances funds can also be obtained much more quickly than a remortgage, and as a second charge avoids the need for the borrower to pay an early repayment penalty to their first charge lender, you can see that we have a real opportunity to help more clients meet their borrowing requirement and for brokers to meet their regulatory requirements.
We now have seven lenders that offer second charge mortgages on buy-to-let properties with rates starting as low as 5.79%. This will massively assist the growth of the market as more buy-to-let investors look to expand their portfolios. It was only last year that as few as two lenders would take a look at a BTL second charge and as a result the rates were not overly compelling.
As new entrants have recognised the opportunity, so rates have fallen, criteria relaxed and the market has started to open up. Of course this means that we can help many more clients and offer them something actually worthwhile.
To Refer or Not Refer?
If you don’t have second charge on your radar and you are simply dismissing it as an option, it is acceptable by the regulator if you make the client aware that it isn’t within your scope of service; but who would not want to give their clients all of the available options and ensure that they retain that client? Being on the end of a call to your client who is saying ‘I have found a better option via someone else’ is hard to take and slightly embarrassing, so why put yourself in that situation?
A quick phone call into Brightstar will result in terms being made available within minutes. These can be formalised via a credit search when the broker has presented all of the options and the loan has been deemed the most suitable. Having worked as a mortgage broker myself I understand how important it is to look after your clients, most brokers rely on client referrals, so doing a good job is extremely important.
We are fast approaching MCD in March 2016 and although it isn’t going to become compulsory to provide terms for a second charge it is clear to see that not doing it may have much greater significance if your colleagues or competition are. We all want to be deemed as being “best in field” and I would argue that you can only be this if you are looking at all of the options.
The seconds market in the lead up to MCD continues to thrive as rates continue to fall and loan sizes continue to grow, we know that MCD will present its challenges and we accept that change will not always be viewed by some as positive but bringing second charge mortgages into the mainstream is all about removing that perception of subprime and doing what is best for the consumer.