Second charge market at highest level in decade

Second charge market at highest level in decade

The number of consumers opting for a second charge mortgage is at its highest level for more than 10 years, new figures have shown. 

According to data from the Finance and Leasing Association, March 2019 saw the highest level of new business in the second charge market since October 2008.

There were 2,392 new agreements made in the month at a value of £108m.

This meant the value of new business was up 25 per cent from the same period the year before while the number of policies taken out increased by 31 per cent.

Overall 2018/19 has so far been a bumper period for the second charge market. 

A total of 24,812 policies were agreed in the 12 months up to March — 13 per cent up on the previous year — while the three months to March saw new policies up by 25 per cent on the quarter before.

A second charge mortgage means a consumer can raise funds using any equity they have in their property as security against the loan rather than remortgaging the property.

The consumer will then have two mortgages on their property rather than the single first charge policy or remortgage plan.

This can be helpful for borrowers who have a good deal on their first mortgage — such as a tracker mortgage at a low per cent above the base rate — who do not wish to lose the deal by remortgaging their property but wish to release equity.

Typically, second charge mortgages have higher interest rates than remortgages and will be more expensive.

But for customers with very good first charge mortgage policies second charge mortgages could work out cheaper in the long run.

Daniel Yeo, owner of the Specialist Finance Centre, said he thought the rise in the second charge market was partly down to customers in such a situation.

He said: "For some people, paying the slightly higher rate on a second charge mortgage is going to be worth it to hold on to the first charge mortgage they have.

"In some instances, this will be the cheapest and most sensible thing to do."

But Mr Yeo said he thought the increased interest in second charge lending was also down to the way the products and the market has evolved.

He said: "I think we’ve evolved as an industry and second charge mortgages have evolved as a product.

"We’re seeing more competition from lenders and rates that can compete with some first charge products as the view of the market shifts.

"In the bad old days, it was a product of last resort. It was only if you could not remortgage and had adverse credit."

Mr Yeo said as more brokers saw second charge as a viable option, more consumers were being advised into the second charge market.

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