Interest charge

The rise of second mortgages

“Brokers whose clients need a cash injection but don’t want to lose the prime rate on their first mortgage should always consider a second mortgage as the best option”

The second mortgage market continues to boom in popularity as market forces such as soaring inflation, rising interest rates and escalating cost of living drive volumes up business as a growing number of brokers and their clients begin to realize the benefits offered by the market.

Recent figures from the Finance & Leasing Association show that new business volumes in the sector increased by 29% in July 2022, the highest monthly total for new business volumes since September 2008.

Of the total number of new deals signed in July, 54% were for consolidating existing loans, 15% were for home improvements, and a further 26% were for both loan consolidation and home improvements.

The continued recovery in sector growth comes as no surprise given the current volatility in global economic markets, and with further interest rate hikes expected and inflation expected to climb to 14% by At the end of the year, this trend should continue. continue as UK households look for ways to better manage their family budget.

As FLA figures show, debt consolidation is a key driver of industry growth, accounting for more than half of all business transactions, as more brokers and landlords begin to realize the potential debt repayment by borrowing against the equity in their home and taking out a second mortgage.

For homeowners who have taken advantage of rapidly rising house prices over the past few years, taking out a second mortgage is a useful tool for consolidating debt, as they can borrow more than with other credit options, especially if their home has increased significantly in value.

This money can then be used to pay off any unpaid credit card or unsecured debt they currently hold and put them back on even footing. It also means homeowners can keep their first mortgage, which protects the prime rate on their first mortgage and avoids incurring prepayment charges.

Using a second mortgage to complete home renovations can also be a convenient solution for homeowners looking to create more space, as it’s easier and cheaper than moving. This is particularly relevant in the current climate, as predictions of a slowing housing market could lead to fewer people putting their homes up for sale and deciding to expand instead.

In a higher interest rate environment, this makes more sense because borrowers with a decent fixed rate, but who need to raise capital, can tap into their home equity and use the money to build an extension, a garden office or a loft conversion. This will allow them to create more space in their home while keeping their first mortgage intact.

Brokers whose clients need a cash injection but do not want to lose the prime rate on their first mortgage should always consider a second mortgage as the best option for their client as it offers a cost effective way to raise funds for debt consolidation. or home improvements in situations where remortgage is not possible or the best advice for their situation.

This is particularly relevant after the recent mini budget which saw market fluctuations drive interest rates on mortgage products higher. In this case, a second mortgage may well be a better option for your client.

For brokers who are unfamiliar with the market or in a position where they cannot process the loan, referring the client to a specialist conditioner who can complete the transaction on your behalf allows your client to obtain the most suitable deal to his needs while you continue with the work at hand.