The second charge secured loans market is under a period of change and has been since April 2014 when responsibility for the regulation of consumer credit transferred to the FCA. But there’s also an EU Directive due to be implemented in 2016. In short, when a customer wants to remortgage to raise additional funds, the intermediary/broker will need to demonstrate the best outcome for the customer and not only look at a full remortgage on a first charge basis, but compare with an appropriate secured second charge loan allowing the customer to keep the existing mortgage. 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.
In fairness, and depending on the reasons for the capital raising, there are numerous examples of borrowers being better off with a secured loan rather than moving their existing mortgage, especially if it’s an interest only mortgage. In addition, those who are self employed with minimal accounts, have historic adverse credit or need a greater flexibility than that offered by first charge mortgage lenders, may have no other option than to look at a second charge on their property.
So be prepared moving forward, if you want to raise some additional funds on your property, you will be presented with a standard remortgage first charge illustration as well as a secured second charge alternative. With rates now starting from below 5% on a second charge loan, this may not be a bad thing.
At the beginning of October, as mentioned in some previous articles, the Bank of England has enforced capping restrictions to lenders. Funders will now only be allowed to lend up to 15% of their loan book at more than 4.5 times income. No one knows the true effect this will have to funds available in the market generally, only time will tell.
Finally, it is really good to see a new lender coming to market. Fleet Mortgages, a new Buy to Let lender is set to launch in November. The management team are no strangers to the market as many have been involved in various lending guises previously and we certainly welcome a fresh outlook and further funding in the market. I wish them every success.