It’s been two years since the rising cost of living became a major concern for all of us.
Unfortunately, it seems like this challenge will stick around for a while. As consumers, you’ve probably noticed the immediate effects, like more people relying on food banks. But there are also some longer-term consequences that are starting to show, and one of them involves housing.
For instance, if you’re a first-time homebuyer, you’ve likely felt the pressure of trying to save up for a down payment and meeting stricter criteria. The media has covered this extensively. However, existing homeowners are facing their own set of challenges that shouldn’t be overlooked.
Here’s an eye-opening statistic: According to the Bank of England’s data released in September, the amount of outstanding mortgage balances with arrears increased by 13% from Q1 2023 to Q2 2023, resulting in a 28.8% jump over the year. This is quite a shift from the previous trend of gradual decline.
But there’s a silver lining in the UK mortgage market that might help homeowners during these tough times. Many of you have built up significant equity in your homes. In fact, a study by Uswitch in June revealed that 63% of mortgages issued in Q4 2022 had a Loan-to-Value (LTV) ratio of 75% or less, showing how the market stands today.
For some homeowners, tapping into this stored equity could be a solution to tackle existing debt, taking advantage of the favourable rates associated with borrowing against your property. In the past, a further advance on your mortgage might have been the go-to choice for this, but times have changed. Many people’s circumstances have evolved, especially with more folks moving into self-employment or dealing with adverse credit situations.
This is where second charge mortgages come into play. Not long ago, these types of mortgages didn’t have the best reputation compared to other secured borrowing options. However, the landscape has transformed significantly. One of the reasons for this change is the sudden increase in first charge residential rates, as the Bank of England aims to combat inflation. Many homeowners now find today’s remortgage rates too high. By taking out a second charge mortgage alongside their first one, they can hold onto their original, more favourable interest rate.
We firmly believe that many homeowners who may seem like a risky bet to big banks are simply going through challenging times rather than displaying poor financial behaviour. Or perhaps they took a leap of faith in their business ventures. A second charge mortgage could be the right fit for you and many others.