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Problem
Your client has a very low rate lifetime tracker first mortgage. Many lifetime trackers were sold a number of years ago with some lenders offering rates of 0.25% (or lower) above BBR. You have explored the current first charge market and it is not possible to remortgage to an equivalent or lower rate.
Solution
This is clearly a scenario where a second charge loan should be considered. For example, if the client has a base rate tracker mortgage of £500k at a rate of 0.75% (0.25% above base rate) and wants £50k, it is more likely that a second charge loan is a better option than remortgaging.
Problem
Your client would face high early redemption charges (ERC’s) on their first mortgage if they were to remortgage in the next 2 years.
Many first mortgage products sold in recent years carry ERC’s particularly on fixed rate / discounted rate and tracker rate products.
Solution
Rather than the client remortgage and pay high ERC’s, it may be more beneficial for him to take out the required additional borrowing by way of a second charge loan. Then in 2 years time when the ERC’s no longer apply on the first mortgage, he can remortgage safe in the knowledge that he will only be charged one month’s interest deferred by 28 days (2 months in total)
Problem
Your client wants to raise additional funds to use on a purpose that a first charge lender is not happy with.
Solution
Our lenders are generally more flexible than the mainstream first mortgage lenders when it comes to the purpose of loan. While the purpose of loan for most of our loans is typically debt consolidation OR home improvements a number of our lenders will consider the following more 'unusual' purposes:
- Paying off a tax bill
- Deposit for a BTL
- Purchase an overseas holiday home
- Gift to children for a deposit
- Paying off school / university fees
- Transfer of equity (paying off a partner)
- Business injection
Many of the above purposes are considered unacceptable by a number of first charge lenders.
Problem
Your client has approached their existing first charge lender to further advance but has been unable to obtain the amount required.
Solution
The first charge lender may have declined a further advance for a number of reasons. Typically this might be due to insufficient income, adverse credit or simply because their first charge lender is no longer lending. Second charge lenders often have a different approach to assessing income and adverse credit. If a client is clearly benefitting from the loan and more importantly can afford the loan, lenders are prepared to look at individual applications on their own merits.
Problem
Your client has a very low rate lifetime tracker first mortgage. However they have been told that they only way they would be able to obtain further borrowing is if their current mortgage arrangement which is interest only, is switched to“repayment”. In doing this their monthly payments would rise dramatically making it potentially unaffordable.
Solution
Since MMR a number of lenders have dramatically changed their lending criteria in relation to offering Interest Only as a repayment method.
For example, if the client has a base rate tracker mortgage of £500k at a rate of 0.75% (0.25% above base rate) and wants £50k, it is more likely that a second charge loan is a better option than remortgaging.
Problem
Your client requires a short term loan to update their property before putting it on the market to sell. They are hoping that the whole process will take around 10 – 12 months.
Solution
While bridging finance undoubtedly has its place in the lending market there are a number of situations where a longer term loan may be a better option. A longer term second charge loan would give you clients more flexibility allowing them to complete the works and sell the property at their own pace taking away the pressure of having to sell their property quickly and repay their bridging loan within say 12 months. With a second charge loan applicants can borrow over a term of up to 300 months safe in the knowledge that the ERC at time of redemption will be one month’s interest deferred by 28 days.
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Why a
Second Charge Loan
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Second Charge Loans are a very real alternative to a remortgage. While every application needs to be considered on its own merits, the second charge industry has naturally become more attractive with lender competition meaning that rates now start from 3.83%.