Second High RPV Fee Provides More Options for Borrowers Consolidating Debt

“Advisors of all kinds will have clients who could benefit from a second mortgage to consolidate their existing debts.”

He revealed that almost 3,000 new deals had been completed in May, for a total of £133million. That’s an increase of 43% and 53% respectively from the same point last year, while the increases are even steeper when looking at the level of lending in the 12 months to May compared the previous 12 months. Lending is now largely back to pre-pandemic levels

Debt consolidation is currently one of the main drivers of the surge in the aftermarket business. In recent years, when cheap credit has been plentiful, there has been a significant amount of ambitious borrowing – using personal loans and credit cards to buy a new car, big vacations and home improvements. home, for example.

However, the circumstances are changing somewhat now. Interest-free credit cards are no longer as widely available as they once were, while rising household bills mean most people have less disposable income to devote to paying off the costs of unsecured borrowing.

Second mortgages are a fantastic option for homeowners in this situation. They can consolidate their various debts into one loan, without having to remortgage or touch their current first mortgage, instead using the equity they have in their home.

However, one element of the second charge loan that is often overlooked for debt consolidation borrowers is the loan-to-value ratio offered. There are now a handful of different names that are willing to consider second mortgages at high LTVs, in some cases going as high as 100%.

This is a level of borrowing that can make a huge difference to borrowers looking to improve their finances.

A short term solution

Now, it’s certainly true that unlocking substantial amounts of equity held in a property – or even the entire equity interest – in order to pay off some unsecured debt is less than ideal. All homeowners want to be mortgage free as soon as possible, and that includes second charges on top of their regular mortgage.

However, it is important to remember that second charge loans are often a short term proposition. Although the loan itself can be taken out for a longer term, say around 20 years, this is simply to keep repayments manageable.

What we tend to see is that the borrower pays off a larger sum once their first mortgage reaches the end of its fixed term, and uses the equity accumulated in the meantime to pay off the rest of the second charge.

This is why, in our experience, second charges are usually only in place for two to five years. It’s also worth noting that many second charge transactions have no prepayment charge, making it easier for customers to repay these loans when it’s convenient for them, rather than having to wait for a prepayment period to end. charge.

Confidence in house prices

This strategy obviously relies somewhat on the continued rise in real estate prices. It is only through this capital growth that homeowners will see their stake increase after taking out the second charge, allowing them to remortgage down the line and repay the loan.

Recent years have been marked by an extraordinary rate of growth in house prices which is unlikely to be sustainable in the long term. For example, according to the latest figures from the Office for National Statistics, house prices rose an incredible 12.8% in the year to May.

In cash terms, this means the typical property has earned £32,000 in the previous 12 months. This is on top of the excellent capital growth since the start of the pandemic.

Double digit annual growth is not necessarily something that will continue. However, even with the economic difficulties ahead, the market remains extremely confident about the prospects for further growth in house prices. After all, advisors are well aware that there remains significant demand from potential buyers, which, combined with underlying housing shortages, should support further increases in house prices.

It is because of this confidence that second-charge lenders are willing to offer products at such high LTVs.

Help the owners

The second mortgage market is a niche market, an area of ​​home financing that not all advisors will be comfortable with. However, advisors of all kinds will have clients who could benefit from a second mortgage in order to consolidate their existing debts.

Therefore, it is crucial that intermediaries think about how they can support these customers. Partnering with industry experts can be a simple and effective way to do this; companies like ours have the knowledge and expertise to know not only which lenders are best suited to help these clients, but also how to prepare the deal to ensure it has the best chance of approval.

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