The Intermediary – February 2025 - Flipbook - Page 48
S E C O N D C H A RG E
Opinion
2025: The year of
the second charge
mortgage
T
his year is already
shaping up to be
another challenging
period for everyone.
Currently, the economy
is not being helped
by tax increases and additional red
tape for employers, which will make
them think carefully about reviewing
hiring strategy.
In an aempt to stimulate growth
in the economy, the Government has
floated the idea of relaxing some of
the criteria that, aer the crash of
2007-8, were put in place to make
sure that lenders did not overextend
mortgage clients.
While there is a possibility that
first charge criteria might or might
not be relaxed, the fact remains that
second charge lending relies less on
rigid criteria and more on assessing
individual circumstances.
Of course, all advisers must make
recommendations based on a full
fact-find, and it is vital to ensure
that clients’ best interests are being
catered for.
Nevertheless, whereas first charge
mortgages are largely reliant on credit
scoring, which might not take the
clients’ unique financial experiences
into account, second charge mortgages
are less constricted.
Effective solutions
As a provider, I have ‘skin in the game’
to promote second charge mortgages
and naturally I want to draw more
aention to the benefits of second
charge borrowing. So, I make no
apology for running through some
of the main reasons where a second
charge can be so effective.
In no particular order, these are
the main reasons I see every day why
a second charge option should be
considered by advisers:
48
The Intermediary | February 2025
To avoid early redemption charges
(ERCs): If a client has an existing
mortgage, remortgaging might lead
to paying an early redemption fee
which can be an unwelcome
extra expense.
Where an existing mortgage
might have particularly low rates:
Remortgaging to a new product runs
the risk of losing a good rate and
increasing a client’s repayments.
Where a client’s existing first
mortgage is on an interest-only
basis: Remortgaging could mean
they have to move to a repayment
mortgage with more costly
monthly payments.
When a client has suffered a
dramatic change in circumstances
such as loss of a job: Their credit
score might mean that a remortgage
becomes more difficult to obtain.
While debt consolidation is one of
the most popular reasons for adopting
a second charge option, there are other
equally valid reasons to consider a
second charge mortgage.
Among them are home
improvements for such projects
as lo conversions, basements,
conservatories, new central heating
systems, bathrooms and kitchens,
property redecoration or to refurbish
a garden.
All of these require funding,
but whether a client should switch
mortgages to accommodate extra
borrowing – with all the potential
added costs – or leave an existing first
mortgage in place and opt for a second
charge to finance the cost of the home
improvements, should come down to a
discussion.
Innovative uses
Other uses of second charge mortgages
could be:
LAURA THOMAS
is regional sales manager
at Equifinance
Whereas first charge
mortgages are largely
reliant on credit scoring ...
second charge mortgages
are less constricted”
Investing in business: If a client is
self-employed, they might want to
consider a second charge option to
help them grow and expand. Being
self-employed can make it difficult
to obtain a remortgage.
Unexpected large bills that had not
been accounted for: Weddings,
home repairs, and heating system
replacement are only a few
examples.
Payments and purchases: Paying
school fees and the purchase of a
second home are also candidates
for financing via the second charge
option.
All of these examples assume that
the adviser has done a full fact-find
and is willing to consider other paths
rather than just plumping for a
remortgage.
The advice sphere is evolving,
and with Consumer Duty now
firmly embedded in the compliance
universe, the need has never been
greater to demonstrate how lending
decisions are leading to beer
consumer outcomes. This provides
intermediaries with the opportunity
to embrace a more inclusive
approach to selecting a suitable
lending solution. ●
