An increasingly attractive option, this product should be in every broker's toolkit
Photo Caption: Ryan McGrath, Second Charge Sales Director at Pepper Money
This article was created in partnership with Pepper Money
As the mortgage landscape continues to evolve, second charge mortgages increasingly stand out as a key instrument in a broker’s toolkit — but the option’s strategic value needs to be better understood and promoted, believes Ryan McGrath, Second Charge Sales Director at Pepper Money.
“There are many situations when a second charge mortgage can be the right option for a customer who wants to raise money secured on their property,” added McGrath. “Brokers should consider every option for customers who have a capital raising requirement and this includes second charges. Even if you don’t offer second charges, you should be signposting that they are available as an option.”
The strategic advantage of a second charge mortgage
At brass tacks, second charge mortgages can be more cost effective than a remortgage — perhaps the customer is in the ERC period on their mortgage, for example, or would lose their low rate if they were to remortgage — and are also generally faster and more convenient, which is often a top consideration for customers.
Historically, common uses for this product include paying for one-off expenses, such as a wedding, or to settle a tax bill but in the current economic environment, managing debt and funding home renovations are driving second mortgage’s relevancy higher. Amid escalating living costs and burgeoning debt levels, many people are grappling with a cost-of-living crisis and are turning to credit to make ends meet.
By the end of November 2023, the Money Charity reported outstanding consumer debt in the UK was sitting at £221.4bn, up by nearly £1.7bn on the previous month, and Pepper Money’s own Specialist Lending Study found that 43% of people with adverse credit say their level of debt has increased in the last 12 months, up from 33% in last year’s study. Further, other research shows that 30% of people with adverse credit have outstanding debts, aside from the mortgage and student loans, of more than £5,000, while 9% have outstanding debts of more than £15,000. There has also been an alarming rise in high-interest options like Buy Now Pay Later credit, with 45% of people with adverse credit saying their use of BNPL has increased in the last year, and 17% saying it has increased a lot.
Brokers can help customers get their debts under control and reduce their outgoings through debt consolidation, as a single repayment not only makes things simpler but can also dramatically reduce the cost of repaying that debt, McGrath explained, adding that “one option for homeowners is to make use of the equity in their home, either by raising capital through a second charge mortgage or a remortgage, and streamlining their debt.”
With the ongoing squeeze on household finances and given the average cost of moving is £12,000, many people are opting to extend or improve their current home rather than moving to a new property. Second charge mortgages also present a viable solution for completing these home improvements.
Taking a broader view, McGrath pointed to industry figures that estimate as many as 1.8M fixed rates will be reaching the end of their fixed term in the coming year, but UK Finance figures have shown a consistent increase in the number of customers opting for product transfers, which don’t allow extra borrowing.
“Many of these customers could have a capital raising need that would be well served by a second charge mortgage,” he said, but noted that despite the advantages, according to the Specialist Lending Study, only 12% of people would consider a second charge mortgage if they wanted additional borrowing secure on their home.
“We still have a long way to go in customer’s understanding of the product,” McGrath stated.
Overcoming the awareness gap and leveraging a useful tool
Brokers have the opportunity to not only expand their service portfolio, but also to empower their customers to make informed financial decisions through the strategic use of a second charge mortgage. People need options, and brokers should be proactive in marketing themselves and the diverse borrowing opportunities available — including an increasingly relevant tool such as the second mortgage product.
“Our study found that, for most customers, their journey in looking for a mortgage starts online, and brokers have an opportunity here to ensure that their online presence delivers a positive reflection of the value they provide,” McGrath said. “At Pepper Money, we created an online Broker Marketing Hub to help brokers to take the first steps in marketing their services more effectively.”
But if a broker is new to second charge mortgages or doesn’t arrange many, “you don’t have to dip your toe in the market,” McGrath noted. Instead, brokers can partner with a sector expert to help identify and explore all available solutions. For example, Pepper Money has built strong relationships with a select number of intermediary partners with whom they work closely.
“Through education, collaboration, and leveraging resources like those offered by Pepper Money, we can ensure the best possible customer results for every scenario,” McGrath summed up. “We provide excellent service and continue to enhance our proposition.”
For more information, reach out to a Pepper Money expert today.
