Keep your current mortgage and look at a secured second charge?

So you are looking to raise some funds for a home improvement exercise or maybe to purchase another property, yet your current mortgage is a on a superb, competitive rate and you really don't want to change it.  Your current lender has offered a further advance, but you want to explore other options.

That leads us to the secured second charge market, also known as secured loans.

A secured loan is a 2nd, or subsequent charge, designed for homeowners and which allows the equity in their property to be used as security.  Loans usually start from £3.5k and now range right up to £2.5m!  There are also no 'up-front' fees to find although costs for valuations and legals (for example) are added to the advance.

Depending on the amount already lent as a mortgage, compared to the value of the property, most lenders will allow a secured loan to be added as additional borrowing, sometimes up to 95% of the property value.

The secured loan is normally repaid over a shorter term than a standard mortgage, usually 3-7 years, but the term can be longer and up to 25 years, although this will increase the amount of interest repaid. Rates vary depending on the customer’s circumstances and current level of borrowings, but can start as low as 4.95%.  

This market is predicted to grow dramatically in 2016 when a new EU Directive is implemented.  In short, when a customer wants to remortgage to raise additional funds, the intermediary / mortgage broker will need to demonstrate the best outcome for the customer. This means not only looking at a full remortgage on a first charge basis, but a comparison with an appropriate secured second charge loan allowing the customer to keep the existing mortgage or a further advance with the existing funder.  Although the Directive is still a way off, the FCA principles already apply to firms and individuals so best outcomes and best practice for borrowers are at the forefront of any advice and recommendation. This demonstrates more than ever the need to seek professional advice to achieve and meet your needs and requirements!

Much has changed since 2007...

Someone said to me this week its five years since Northern Rock crashed the ‘mortgage boom’ party and to be honest, I did ponder on where those years have gone!  Much has changed since 07 and lenders now appear to be run by their credit risk personnel, who in turn report to the Financial Services Authority, our regulators.   Let’s be honest, most feel that the FSA now run the lenders too!  As a directly authorised mortgage intermediary, we have had our fair share of ‘guidance’ by the regulator and with the fees involved just to trade in the mortgage market, it’s no surprise that so many have jumped ship and started new careers.  However, what this has left is huge gaps and I often wonder where the market will be in two or three years time as many more retire and fresh blood seems to be so scarce on the horizon.  What will be will be!  But in the meantime, there’s no substitute for honest, transparent professional advice and recommendation, based on your exact needs and requirements.   Online computer systems just can’t compete with that!

Halifax has launched a 5.89% (APR 6.1%) seven year fixed rate mortgage up to 90 per cent of the property value, exclusively for first time buyers.  There is no product fee and customers are eligible to receive £500 towards their moving costs.  Might be right for some very cautious people who like to fix payments long term.  However, rates are lower on shorter term fixes and with rates predicted to be static for some time, alternative products at the end of the short term are likely to still be more competitive.  But, the principle of trying to help First Time Buyers is to be applauded.

Finally, the 2^nd Charge Secured Loan market showed huge growth in July.  Second charge mortgage lending shot up by 11% according to the latest figures from the Finance & Leasing Association.   Many who require a loan to carry out home improvements or for other luxury items, but are currently sitting on very low lenders variable rates are opting to add on a second charge to their current property (sits behind the first charge mortgage).  Again, right for certain people but rates start from 6.9%, so will need to ensure its beneficial in the short to medium term compared with a complete remortgage to another lender/rate.