Homeowners are utilising second charge mortgages to raise money to invest in buy-to-let properties, home improvements, and to consolidate debt, according to a new survey.
A second charge mortgage allows you to use any equity you have in your home as security against another loan. It means you will have two mortgages on your home. Equity is the percentage of your property owned outright by you, which is the value of the home minus any mortgage owed on it.
Knowledge Bank holds the largest database of up-to-date mortgage lending criteria in the UK and its monthly criteria index shows the terms that brokers are actually searching for. These may well be reflected in mortgage completions in two-or three-months’ time.
Capital raising featured in three of the top five most searched terms in the second charge market in March. The reasons for this capital raising varied greatly however.
The second highest-searched term was ‘capital raising to purchase a buy-to-let’, which follows the trend of investors looking to purchase rental properties as the stock market remains volatile and demand for rental property soars.
‘Capital raising for home improvements’ was fourth on the list. This is potentially due to homeowners looking to renovate, add an extension, or build an office in the garden, possibly as a result of an extended period working from home.
Brokers were also searching for ‘capital raising for debt consolidation’, number five on the most searched for terms. This suggests there are clients looking to secure unsecured debts against their home to bring all their debts into one place and take advantage of the lower interest rate they will pay.
The variety of searches in the second charge market appear to be a reflection of the wider economic situation in the UK.
Since the start of the pandemic there has been a split, with those in stable employment able to save and invest due to the lack of opportunities to go on holiday or take advantage of hospitality venues; whereas those who have been hit hardest, have struggled financially and need to secure debt.
In the residential market, as the Chancellor announced an extension to the job support scheme ‘furloughed workers’ was the most searched term for the third month in a row.
Throughout 2021, there has also been consistent interest in ‘Income multiple used for affordability assessment’, and this continued in March. This suggests despite the return of 95 per cent loan to value (LTV) mortgages, home-owners are still looking to maximise the amount they can borrow.
For the first time this year however, there was a search in the top five for lenders who would offer a mortgage to people with ‘defaults – satisfied in the last three years’. This highlights that debt held by some of the UK’s population is not a new problem.
Demonstrating the continued interest in the buy-to-let sector, ‘first-time landlords’ was the top criteria searched by intermediaries for the second consecutive month. ‘Lending to limited companies’ featured in the top five terms searched, and has been a constant since July 2018.
This is due to changes set out by the government in the 2017 Budget, including a reduction in the amount of tax relief available for interest on buy-to-let mortgages for individuals. This policy is continuing to change the landscape of the buy-to-let market.
Knowledge Bank operations director Matthew Corker said: “The second charge market clearly demonstrates the current economic divide in the UK at the moment. There are those who have increased their savings through lockdown and are now using a larger deposit to either invest in property, or add to their existing home. But there are also those who have been hit hard, either losing their job or being put on furlough.”