Fintech enters second charge mortgage space with 'flexible' product

Fintech enters second charge mortgage space with 'flexible' product

Secta Finance, one the UK’s newest fintech start-ups, has entered the second charge mortgage market in a bid to inject it with some “much-needed” flexibility.

Launched just a few weeks ago, Secta offers parents struggling to pay private school fees access to remortgage and second mortgage options.

The online brokerage platform partners with a host of specialist lenders, including credit facility Selina Finance, incumbent United Trust Bank, and challenger banks Masthaven and Shawbrook.

Its offering is split into two core products. One is a flexible five-year interest-bearing mortgage with a maximum loan-to-value of 75 per cent.

Interest rates range from between 3.37 and 4.95 per cent, depending on how much equity is stored in a borrower’s property.

“Like an overdraft, this ‘flexiplan’ is there if you need it, but you don't have to use it,” Secta’s co-founder, Joe Hill, told FTAdviser

In other words, parents can draw down on the loan when they need it, and pay interest only on what they draw. Instead of drip feeding it into their children’s school fees by borrowing a lot from the outset and committing to higher interest rates.

Secta’s loans are secured against the parents’ existing property, which solves the obstacles of unsecured finance but does mean a borrower’s house will be repossessed if repayments aren’t made.

“Families need to look at ways to access this equity at the more expensive periods of their lives,” said Hill.

Equity release-related products are currently experiencing a boom, with more products than ever sitting on the sector’s shelves.

In the current market, an alternative to Secta’s flexiplan is an offset mortgage. This is where borrowers can put a lump sum in an offset account and draw on it over time, usually for up to ten years.

“Offset is a first charge as opposed to a second charge solution,” explained Hill. “So it doesn’t work for people who are locked into their existing first charge product, which many people are.”

David Hollingworth, director at L&C Mortgages, told FTAdviser Secta was “just a different option” but he added its “flexibility” would be its key discernment in a market that does not offer this already.

Unlike other ‘flexible’ second mortgage products on the market, the maximum facility value of a Secta-sourced loan can be withdrawn at any time during a five-year period.

“Sometimes if circumstances change, lenders say ‘subject to checks at the time’,” said Hollingworth. “We’ve seen this in the past with flexible features, which can impact the amount you’re able to borrow.”

Alongside its flexiplan, Secta can also advance the full amount of a loan upfront for those with less equity in their homes. This would then see parents make fixed monthly repayments based on a term they choose of up to 30 years.

If neither of these products are suitable, Secta’s employed advisers will shop around for the best remortgage deal on the market.