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Economic uncertainty drives a second charge finance rise

First Class Second Charge

An increase in the second charge market suggests economic uncertainty could be encouraging more people to make home improvements, rather than move to another property, new figures reveal.

Second charge data from specialist distributer, Clever Lending, shows there’s been an 8.4% increase in people applying for second charge finance in the first half of this year, when compared to the same time in 2017.

Figures also show more than half (51%) of these second charges were applied for to make home improvements.

Furthermore, UK Finance has reported a 9.2% increase in re-mortgage applications in August compared to the same period last year, indicating more homeowners are choosing to stay in their current properties. This is reinforced by the ONS reporting in the July House Price Index that the rate of increase in UK house prices is 3.1%, the lowest UK annual rate since August 2013.

Sam Kirtikar, Managing Director of Clever Lending, said: “With an increase in re-mortgage applications, slump in the UK housing market and uncertainty around our economy, this could suggest more people are choosing to improve their current properties – rather than take a potential financial risk of moving.

Brexit could be changing the property market

“The whole uncertainty around Brexit could be influencing the housing market and people seem to be reluctant to move at a time when it’s unclear how property prices, employment, interest rates and consumer prices are affected.

“This does provide opportunities for home improvement loans though, as even though house prices are rising at a slow rate, equity can still be used to take out second charge finance.

“With this in mind, brokers should consider seconds as a solution for refinancing or home improvements and be aware of the benefits second charges can offer.”

Taking out second charge finance to consolidate debt

When considering a second charge it’s also possible to solve several problems at once. For example, when a customer has a debt consolidation enquiry, their long term situation also needs to be considered – as well as refinancing their debt in the short term, improved properties now could stand them, and their finances, in good stead in years to come. An increased value of their primary asset will allow them to be looked on more favourably for further financial services in the future.

Does second charge affect first charge finance?

If a re-mortgage is being considered, things such as early repayment charges, mortgage special offer period and interest rate should be reviewed.

This is where seconds can be the best option as they can be taken out without affecting the first charge and the most appropriate repayment term can also be put in place to satisfy the homeowner’s budget, which may be different to the primary mortgage.

The best improvements

When it comes to upgrading a house, there are a number of key improvements that can increase the long term equity held in the property. First of all look at the costs of the improvements versus the anticipated increase in house value by looking at similar properties in the vicinity.

Loft conversions can add extra rooms and maybe a shower room, similarly a basement can add rooms and floor space making the property larger and depending on the costs and local market could add equity. The more obvious improvements such as a conservatory, extension and upgrading the kitchen and bathrooms can also add value. However, it’s always important to equate cost with added equity.

When making home improvements make sure the customer has all the correct paperwork in order including planning permissions and works guarantees to help ensure any future buyers aren’t put off.

A Clever approach to second charge

At Clever we pride ourselves on providing personal approach to second charges. Our highly skilful, knowledgeable and experienced team will look at each case in its own right – every time. We can also offer broker two channels – advice or packaging – so you can choose exactly how much input you want.

Find out more about our second charge products here.

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