Figures released this month by the Finance & Leasing Association (FLA) show that the second mortgage market is growing with lending up 6% in July compared to the same period last year. This represents a borrowing of Â£ 98million by UK homeowners, bringing the total 12-month loans up to the end of July to just over Â£ 1billion.
Some of the main reasons for this growth include:
- Legal reasons – it is now mandatory for advisors to offer a second mortgage (secured loan) as an alternative to remortgaging.
- Protect an existing mortgage rate – if a client receives a competitive interest rate on their first mortgage, refinancing may result in the loss of that rate as well as the payment of prepayment penalties. As long as the first charge lender is happy to consent to a second charge, a second charge mortgage can provide a lower cost option to raise the additional financing required.
- Additional restrictions on advances – a senior lender may be willing to provide an additional advance on the existing mortgage. A second mortgage from a new lender can often be a solution in these circumstances.
- Credit Recovery – Due to circumstances often beyond a customer’s control, a credit problem can result from a difficult time, for example illness, termination. A second mortgage can help a homeowner improve their credit rating.
With the use of automated valuation models by lenders, the process of securing a second mortgage can be considerably faster than a re-mortgage, with one lender reporting it took 8 days between counseling and withdrawal.
Second-rank mortgages â