2020 is the year of the second charge mortgage
Paul McGerrigan (pictured) is chief executive at Loan.co.uk
The UK continues to see very low interest rates and they have remained that way for over 10 years with many borrowers never having been subject to a rate rise.
This causes pain for savers but for house purchasers, their mortgage debt has cost very little in comparison to the early 1990s when rates were around 15%.
With uncertainty over the implications of the UK having left the European Union coupled with continued economic uncertainty, the Bank of England’s Monetary Policy Committee finds itself in a quandary each time they meet. The most recent decision was to keep interest rates unchanged at 0.75%.
With these low rates we have seen some high street mortgage lenders tighten their criteria and others exiting the market completely. Historically when we see this happen, more niche products tend to see an uplift as UK consumers still need and want to borrow money and they are turning to their mortgage adviser to find solutions to their lending problems.
One solution that is on the rise is the use of second charge mortgages.
This is in part due to the number of mortgage borrowers that have tied themselves into the low rates for long terms. Second charge mortgages provide an ideal solution for those that want to invest in their current property, rather than looking to move and incur moving costs, stamp duty and other out of pocket expenses that go hand in hand with a new property.
This is clear evidence of the increased use of second charge mortgages, 2019 will have seen approximately £1.4bn lent, but it is still an underused solution.
Not all mortgage advisers have used second charge mortgages and one thing that we are seeing is a lack of in-depth knowledge of the sector and many mortgage advisers wanting to understand it better and work with partners who can service this need.
For mortgage advisers this is a still an untapped lending solution for clients and many that we are working with are focussing on this area and seeing business growth. As you would expect, with this growth comes increased scrutiny from the regulator and the sector is seeing this with a focus on how and when second charge mortgages are used. I certainly don’t have an issue with this and welcome regulator scrutiny if it improves the sector and the solutions available to consumers.
Technology is also impacting the second charge mortgage market. They are still an expensive product to process, as to be honest are first charge mortgages, and I think the adoption of new technology designed to save operating expenses, enhance compliance and aid the advice process will evolve and be taken up at much faster rates.
We have adopted On The Money’s platform Signature to help in this area.
So all in all, it may be the start of a new decade, the Chinese year of the rat but for me, I believe it will be the year of the second charge mortgage.