Why Second Charge mortgages are not just designed for those with poor credit histories

Earlier this year, we dedicated a post in this series to dispelling some of the common misconceptions around Second Charge mortgages.

In this post, I want to dig a little deeper into a specific misconception we highlighted, interrogating second charge mortgages are not just for those with poor credit histories and how, at Pepper Money, we want to help brokers in the sector.

Where does this misconception come from?

The idea that Second Charge mortgages are only a plausible solution for customers with poor credit history is rooted in antiquated thinking applied to past economic landscapes.

And contrary to this misconception, our customers have a higher average credit score than the typical First Charge mortgage customer. In addition, household income is also above the UK average with many customers possessing a higher property value.

A Second Charge mortgage can be a solution for many financial circumstances and therefore helps cater to a wider variety of customers than most brokers operating strictly in the First Charge sector believe.

We see applications from key workers looking to improve their homes through to high-net-worth individuals looking to use loans for business purposes.

For these customers, a Second Charge is often the best option. This is why, since 2016, the Mortgage Credit Directive (MCD) has required mortgage advisors to make borrowers aware of second charge mortgages, not solely presented as a back-up to first charges, but as a genuine alternative.

There is no one-size-fits-all customer

However, the reality of how people work, earn and manage money has changed dramatically in recent years.

We also see customers using a Second Charge to consolidate existing credit payments that may have been accrued during retraining for a change in career, or incurred when completing home improvements which are part of homeownership.

To make sure we cater to their needs, all Pepper Money products are launched with a clear, flexible focus on the target customer. We use a variety of methods to identify these using both internal and external resources, such as our own research conducted with Yougov, or BVA BDRC. Our customer profiling also references the FCA Consumer Spotlight segmentation which gives clear insight into customer characteristics.

We have also added a more holistic approach to pricing which means we can more accurately assess a second charge customer and provide an offer tailored to their individual circumstances.

Helping brokers help their customers

Brokers operating in the second charge sector do a great job of finding and recognising the most suitable customers for the products. I believe that our products play a significant role in financial inclusion; our broker partners often reveal that many of their customers are rejected by the high street for reasons which, based on the application with fair criteria, make little sense.

That said, I continue to hold the belief that more can be done to raise consumer awareness of the product and its financial options. There are certainly more people we could help. While brokers are already doing a great job to circulate this option, as a lender, we intend to do more to increase awareness through commissioning our own research, creating valuable content resources and utilising our social media platforms to open up conversations with brokers further afield.

We’ll also look to support brokers in whatever way we can and I always welcome suggestions from any of our brokers on how we can support them further.

The more we’re able to help, the more the market will grow to benefit everyone, from those within the sector to customers using the products.

If you’d like to chat more about second charge mortgages and how Pepper Money can help your customer’s case, contact us.