Why Choose Shawbrook for Your Second Charge Mortgage?
In the midst of the ongoing cost-of-living crisis in the UK and the financial challenges faced by households across the country, brokers should consider second charge mortgages as a valuable tool to help their clients secure the finance they need, especially in the coming year.
As mortgage interest rates continue to soar in the past six months, borrowers may be hesitant to remortgage out of fear of losing their favorable first charge interest rate. A second charge mortgage provides an alternative solution to unlock the equity tied up in the value of their property, while maintaining their existing first charge.
Unlike remortgaging the full balance at a higher interest rate, a second charge mortgage allows the borrower to only pay the higher rate and extra interest on the new amount they need to borrow, potentially making it more cost-effective. Additionally, some lenders offer no early repayment charges on second charge mortgages, providing flexibility for borrowers to pay back their loan as they choose.
Moreover, as lenders tighten their lending criteria and affordability requirements due to the ongoing cost-of-living crisis, customers with complex income structures may face difficulties in remortgaging with their current lender. A second charge mortgage could serve as a viable solution for those who are seeking to borrow funds.
Why a Second Charge Mortgage Could Be the Right Solution for Your Customers?
A second charge mortgage can offer a range of benefits to your clients in a variety of situations. Here are some scenarios where it could be the best option:
- Your client has a competitive first charge mortgage interest rate that they want to preserve. Remortgaging could mean losing that rate, so a second charge mortgage is a way to raise funds while keeping their existing favorable rate intact.
- Changes in your client’s circumstances may have affected their ability to qualify for the same favorable terms they had before. This can make it difficult to remortgage, but a second charge mortgage may still be a viable option.
- If your client has an interest-only first charge mortgage, remortgaging could require them to switch to a full repayment basis.
- If your client’s first charge mortgage has early repayment charges (ERCs), remortgaging could result in additional costs. A second charge mortgage can avoid these charges.
- A second charge mortgage can also be a way to help your clients rebuild their credit rating if they have had difficulties in the past. By making prompt payments on a second charge mortgage to demonstrate their ability to manage their finances responsibly.
- For clients looking to borrow larger amounts, a second charge mortgage can allow them to raise funds for a range of purposes, such as paying a tax bill or consolidating debt, which may not be available through remortgaging or personal loans.
- If your client is unable to apply for a further advance with their current lender, a second charge mortgage can offer a way to raise funds without having to change lenders.
What Can a Second Charge Mortgage Be Used for?
The second charge mortgage market provides lending solutions for clients who need to raise additional capital for various reasons. Second charges can be used for purposes that are not readily available via a first charge option, and various lenders allow different types of uses. As an adviser, it’s important to choose the right product for the right purpose to achieve the correct customer outcome.
One of the most common uses for second charges is debt consolidation, especially for customers with “persistent debt.” The advisor calculates the cost of their customer’s debt and works with the lender to redeem and pay off some or all of it, consolidating it with a second charge mortgage. This leaves the customer with one affordable monthly repayment.
Second charges can also be used for home improvements, which could add value to the property, and for other purposes such as business, tax bills, holidays, medical procedures, car purchase, school fees, weddings, and gifting money to a child, among others.
The improvements a client can do vary depending on the lender, and it’s crucial to choose the right solution and lender for each client. With a second charge mortgage, clients can access funds that they may not have been able to get through a first charge option, enabling them to achieve their goals and improve their financial situation.
Brokers can play a crucial role in guiding their clients towards making informed decisions about second charge mortgages. By acquiring a good understanding of the market and its products, brokers can provide tailored solutions that meet their clients’ unique financial circumstances and goals. Educating themselves on the different lenders and options available in the second charge market will help brokers better serve their clients and ensure that they make the right decision when considering a second charge mortgage.