It’s not all about debt consolidation in seconds

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“Many people have had to resort to various types of credit to keep their heads above water, and as a result, found themselves leaving the foreclosure with more debt in their name than when they entered it.”

For some mortgage professionals, the obvious role of a second mortgage is to help their clients who currently have a range of loans / debts that they want to consolidate into one more manageable loan.

There is no doubt that second mortgages have a vital role to play when it comes to tackling debt. Even in normal times, there were a significant number of borrowers across the country who had taken out a handful of different forms of credit, and were therefore juggling the challenges of keeping track of different repayment dates, interest rates and unpaid balances.

Having the ability to consolidate those debts into one easy-to-understand monthly mortgage loan was naturally appealing.

And this cohort of borrowers has only grown for a year and a half. The reality of the pandemic is that many people have had to resort to various types of credit in order to keep their heads above water, and therefore found themselves leaving foreclosure with more debt to their name than when they were there. entered. We have already worked with many borrowers in this position this year and expect to see more in the coming months.

However, it would be a mistake to think that second mortgages are so limited in their appeal.

Don’t move, get better

Mortgage advisors won’t need me to remind them of how hectic the buying market has been in 2021, as thousands of potential buyers struggled to get their purchases past the right to right deadline. stamp. The allure of avoiding that tax bill has resulted in huge workloads for everyone involved, and with it, significant increases in average home prices.

Not everyone wanted to get involved in this battle of hot cakes, however, choosing to ignore junk for bigger or more decent homes and instead focus their efforts – and finances – on improving what. ‘they already have.

Our own tracking of second mortgages has seen a growing number, especially first-rate borrowers, choose to use these loans for home improvements, whether it’s adding an extension, converting a loft or adapt an existing exterior building into something more useful.

For some homeowners, sitting on their lender’s standard variable rate, a remortgage is an option to raise the funds needed for this job. But how many advisor clients are sitting on an SVR in a given period of time? Not a lot.

Instead, advisors will have already helped them remortgage, often at an extended fixed rate, so these borrowers can enjoy the benefits of a low interest rate longer. As a result, remortgaging could have many painful financial consequences. There are the prepayment charges for switching to a new business, which can be particularly high if the borrower is on a fixed rate product with some time to run. There is also the risk of not only losing the current low interest rate they enjoy, but also the potential of being moved to a higher LTV band – and subsequently a higher interest rate – due to increased borrowing level.

Not exactly an attractive prospect, is it?

Help more borrowers

However, second mortgages offer a way to raise this financing without any of these financial blows. The money is taken from the equity held in the property, leaving the first mortgage completely intact. No ERC to worry about, no danger of being referred to a higher rate; instead, the required financing is arranged quickly and simply, leaving it up to the owner to upgrade their property to better meet their needs.

Given the number of people who will be working from home for at least part of the week for the foreseeable future, rearrange your home so that you have a dedicated workspace rather than sitting at the kitchen table or on the floor. sofa is an attractive solution. idea, so this is another area where we expect to see significant continued demand.

Official figures from the Finance & Leasing Association show that the number of second mortgages taken out and the amounts borrowed have risen sharply in recent months. This is only expected to continue in the months to come, so it’s up to lenders to be innovative in the design of our products and processes, and to show brokers how we can help their clients, no matter why they might be a prospect. suitable for a second charge. product.

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