Secured loan lending continues to grow as lenders offer second charge mortgages with greater flexibility
Figures release this month by the Finance & Leasing Association (FLA) show that the second charge mortgage market is growing with lending up 6% in July over the same period last year. This represents a £98 million of borrowing by UK homeowners taking overall lending over 12 months up to the end of July to just over £1 billion.
Some of the key reasons for this growth include:
- Legal reasons – it is now obligatory for advisers to offer a second charge mortgage (secured loan) as an alternative to remortgaging.
- Protecting an existing mortgage rate – if a customer is sitting on a competitive interest rate for their first charge mortgage, remortgaging may result in losing that rate as well as paying early redemption penalties. As long as the first charge lender is happy to give consent to a second charge, a second charge mortgage can provide a lower cost option in raising teh additional finance required.
- Further advance restrictions – a first charge lender may be willing to give a further advance on the existing mortgage. A second charge mortgage with a new lender can often provide a solution in these circumstances.
- Credit rehabilitation – Due to circumstances often outside a client’s control, a credit blip may result as a result of falling on hard times e.g. illness, redundancy. A second charge mortgage can allow a homeowner to improve their credit rating.
With the use of automated valuation models by lenders the process for getting a second charge mortgage can be considerably quicker to complete than a remortgage, with one lender reporting that it took 8 days from advice to drawdown.