Second charge mortgages have long been considered as the mortgage market’s best kept secret for releasing equity from existing properties. Typically, second charge loans are widely recognised because of their benefits to residential customers; allowing homeowners to carry out renovations and home improvements, consolidate debt, or cover large expenses such as weddings or school fees. We see this with many of our broker partners who predominantly specify their services and support towards more residential based applications.
This year, however, Knowledge Bank revealed interesting insights that prove an increase in interest from first-time landlords looking to use second charge products to fund their first move.
This has struck up new conversations within the sector; buy-to-let is an unconsidered option by most brokers for their customers; but for homeowners with diverse and complex incomes, a second charge mortgage can be the ideal way to build the foundations of a solid property portfolio.
As the economic landscape changes, more people will likely be looking at buy-to-let as an investment opportunity and a way to generate additional income. Second charge mortgages can help them do this.
This is why it’s important that as a sector, we continue to educate and raise awareness of the benefits this type of finance offers to all first-time landlords.
A more inclusive product
Whilst personal loans can be expensive and often restricted, second charges can be used to build a BTL portfolio without affecting attractive first charge products (which may also have significant penalties attached to early redemption).
But it’s the specifics of the product that really make it appealing for first-time landlords. Second charge mortgages are more inclusive than first charge products offered by high street banks. They look at the bigger picture as opposed to pre-defined criteria, meaning customers with adverse credit histories are considered. This makes second charge mortgages a compelling alternative to remortgaging or using unsecured credit.
For example, at Pepper Money, we offer loans of up to £1m for any size property. In helping customers secure the amount they need, multiple income sources are considered to support affordability, including benefits income and pension income. For existing landlords, rental profit from existing portfolios can also be taken into account.
Customers can lend up to 100% LTV, up to six-times loan to income and, in the majority of cases, valuations aren’t required.
We also pride ourselves on speed, where customers’ applications can complete in under 48 hours so that customers can quickly get on with planning their next steps.
Recommending second charge mortgages to your customers
Currently, second charges generate around 3% of the UK mortgage market’s business. This shows they are still a niche offering. But given their flexibility, second charges should be considered to ensure advisors are providing holistic, whole of market mortgage advice. Particularly so in the current climate when income streams are more diverse than ever.
When recommending second charges, it’s important to assess their flexibility so that customers can see the benefits on offer in comparison to other products. Making customers aware that age and circumstances don’t provide the same obstacles to achieving finance.
Second charge mortgages allow customers to lend up to the age of 80 based on pensionable income. And, as mentioned, complex incomes are taken into account.
There are a plethora of options available to brokers, making it easier for you to secure the right product for your applicants.
As the vast majority of our customers are generated through brokers, we will continue to support brokers with innovative products, a compelling service proposition and bespoke pricing that reflects each applicant’s circumstances.
The chances to become a first-time landlord are greatly encouraged by the wider mortgage market – the opportunities presented by the global pandemic to save, invest in longer-term portfolios and expand on existing assets are now open to many more individuals than previously considered.
If you have a customer who is considering becoming a first-time landlord and you know Pepper Money can help, get in touch with Tom Whitney through his LinkedIn page here. Don’t forget to follow Pepper Money UK on LinkedIn for more insights to help your customers.