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Second charge mortgages

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 08. December 2022

Looking to speak to mortgage brokers about second charge mortgages. 

  1. Have they grown in popularity, and if so why?
  2. What are there typical uses ? Are some uses becoming more popular than others? 
  3. What is the lending landscape/application process/criteria like? 
  4. When would you advise someone to take a second charge mortgage?
  5. What are your expectations for the second charge market next year?

12 responses from the Newspage community

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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Second charge mortgages are a valuable offering for customers to achieve where the first charge market fails to provide, yet a huge number of intermediaries dismiss them as an option. Higher loan to value lending and credit repair remain the key areas, with secured loans criteria being far more accommodating than their first charge counterparts. Lending for business and tax are also options. Charwin has had a strong growth year advising on second charges from around 18 different lenders, helping customers achieve better outcomes than if we advised solely on 1st charge mortgages. I fully expect continued growth in this sector in 2023 as the cost of living bites harder and further in to middle class finances, with more people finding themselves seeking alternative finance options so solve whichever problems they are facing.
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Justin Moy
Managing Director at EHF Mortgages
Over the last 12 months we have seen the number of applications for secured Loans increase by around 300% , so it will be a combination of client awareness and also our input into the review. They have become more popular as clients have been able to facilitate a Product Transfer on preferential rates, and then top up on a higher rate through a secured loan. That way, the overall cost has been significantly lower than remortgaging the whole balance. This especially works for those with a small blip on their credit file, as the original mortgage is still on High Street rates via a Product Transfer, just the extra borrowing is on more expensive rates. The affordability assessment is normally more generous, so for those with stretched budgets, they can be a life-changer. The process for a secured Loan can still be quite involved, with the original lender needing to give their consent, and this can take a large amount of time, but the benefits still outweigh this delay. I would expect the 2nd Charge market to see some sharp increases in volumes, assuming rates and affordability still work in their favour. With more clients looking to Product Transfers in 2023, the additional borrowing may be idealy placed with a Secured Loan, rather than a remortgage.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Second charges are rapidly growing in popularity as rates rise. Those with existing fixed rate mortgages who want to retain their super low rates, opt for second charges for capital expense projects like extensions but also for debt consolidation. The latter is increasing due to the economic climate, where homeowners have built up debt on loans and credit cards.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Second charge lending is going to be big business in 2023 as many people look to consolidate as well as reduce their monthly outgoings. Second charges allow you to keep your main mortgage untouched which is beneficial especially if you secured a product pre-September 2022. In addition, your borrowing capacity could be greater than by seeking a further advance with your current lender. If you are consolidating debt you should be aware of the consequences and seek professional advice regarding your options.
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Nicola Schutrups
Managing Director at The Mortgage Hut / William James Wealth Management
Second charges play an important place in the market for consumers.

Reasons to recommend can be varied, however, if a customer is in a fixed rate or has a legacy product they want to retain, but can't borrow an additional funds from their existing lender second charges become a really valuable tool.
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Zaid Patel
Director at Highcastle Estates
Interestingly, we had a client approach us as he completed on a property under an alleged fraudulent title but he found out a year later. Once the original seller was tracked, we suggested to his solicitors and the client to apply to become the second charge on the 'fraudulent' title - luckily, it didn't come to that!
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Matthew Jackson
Director at Mint FS
In a market with increasing interest rates and inflation the demand for Second Charge Mortgages is growing - certainly with in our firm enquiries are up 42% in the last 3 months alone. They are popular for two reasons - the first being that clients no longer want to break long term fixed rates to raise additional finance on their properties as the early repayment charges are too high and the comparable interest rates now offered are double or even more than they currently pay. The second is that first charge lenders are squeezing affordability , stress tests and debt consolidation rules to an extent that precludes their clients from obtaining further advances or remortgaging. And that is where second charges come in - they are the natural next step for any client refinancing, and any broker should naturally end up with this solution if a further advance or 1st charge remortgage is not possible. The uses would typically be for either debt consolidation or home improvements / extensions but they can also be used for business purposes or even paying tax bills. Due to the risk culture permeating through first charge lenders as a result of the mini budget this is a market which will continue to grow in 2023 and we will see demand increase month on month.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
Hi again Anna, Second charges we predict are definately going to be an area of business that grows over the next couple of years. With how quickly interest rates have risen if someone is on a fixed rate mortgage currently that mortgage becomes all the more valuable to hold on to. For example, if someone has £400k outstanding currently at 2% fixed until 2025, but needs 75k additionally and their current lender will not facilitate that they have the options of personal loan, remortgage or further advance. Remortgaging to 5% would cost them tens of thousands extra over the next couple of years, plus there may be an early redemption charge to pay, leading to the best advice being personal loan (which may not go up to 75k) or 2nd charge Generally criteria is flexible both on income multiples and affordability but they do invariably cost more.
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James Vince
Managing Director at Castle View Finance
2nd Charge facilities are a great tool for regulated and un-regulated lending, often cheaper then personal lending and becoming more flexible in facility benefits. We see the normal uses, like holidays and home improvements in the wake of the long restrictive period of Covid-19, allowing families to enjoy some R&R or environmental improvements. There has also been an uptake in property investor releasing funds from primary residence and investment properties to continue growing their investment protfolios. With more lenders entering this space, we see the process streamlining with slicker application process and Desktop valuations with some lenders. This doesn't take away the first step of investigating further advance with the 1st charge lender - usually cheaper and quicker than a separate 2nd charge lender. Castle View Finance Ltd sees this area of the market growing, to support consolation of debts and cost of living re-alignments, Allowing consumers and investors to better position themselves for the forthcoming years ahead.
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Ian Hepworth
Director at Funding Solutions UK Limited
Business owners are using second charges to release funds to their businesses. As the unsecured business loan market has dried up, secured loans may be the only option for many businesses.

The rising costs and pressure on cash flow means that businesses are looking to borrow funds. Often, a secured business loan secured by a second charge can be their only option.

We have seen a huge increase in demand for funding secured by second charges. This is driven in part by demand from businesses for funding but also by lenders looking for more security in these uncertain times.
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Austyn Johnson
Founder at Mortgages For Actors
I get what they are there for. I understand the need for them. I just personally don't like them. Luckily for me in my sector, I do very few of them and only if absolutely needed.
They do have a place though and that place is growing quickly.
I would just be wary about how much research is going into applications for these when other options could be viable.
I never like to arrange anything that I can see may be an issue further down the line. We MUST ensure the longevity and plausibility of income in this scenario.
Maybe I'm just being overcautious!
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Matthew Tristram
Co-Founder at Loans Warehouse
Second Charge lending has grown approx 20% in the last 12 months, we produce the following 'index' using information provided to us directly from Secured Charge Lenders

https://www.project-insights.co.uk/securedloanindex/october-2022

Second Charges can be used for almost any lending purpose but they're most typically used for debt consolidation and home improvements, the latter became more popular during covid times with people improving their homes as they were spending more time in them.

Again, evidence of purpose is shown in the index link we produce

Second Charge lending has continued to grow throughout the year but is expected to grow significantly over the next 24 months with people avoiding a remortgage as this will increase the rate on their main borrowing higher.