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Brightstar: A bright future for second charge lending

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Brightstar: A bright future for second charge lending

Historically, second charge loans have primarily been used for home improvements and consolidation, and although these remain the key motives for individuals using second charges today, they make up a much lower percentage. The main driver for this is that in previous years lenders were much more restrictive in terms of what they would lend for.

However, as the market has continued to grow, we have seen lots more innovation, restrictions have relaxed considerably and most legal purposes are considered. Nowadays, it is much more common to see second charge loans being used for things like buy-to-let deposits, holiday homes, tax bills, business purposes and commercial investments. This and many other positive changes have inevitably helped second charge loans to become an established part of the mortgage lending market as we know it today.

The feel-good factor and an appetite for seconds
 
One of the main reasons why demand for second charge loans has continued to trend upwards is due to a shift in public attitudes, and as a result consumer confidence and overall housing market sentiment is high.  
 
Second charge activity is buoyant against a positive backdrop of historically low interest rates and low inflation alongside a strong jobs market. Second charge loans are more commonly being utilised to satisfy the capital raising required on both current residential homes and investment properties.

The value of a good reputation
 
In the past, second charge loans had a poor reputation primarily due to the ‘up-selling’ of loans and poor affordability assessments which were not fully conducive to ensuring the product fulfilled the clients’ needs.  But times have changed; second charge loans have had a real resurgence over recent years as the sector has worked tirelessly to remove any stigma. However, although the industry is much more tightly managed than it once was and will become more so post-MCD, the market is even more flexible and the processes are much more transparent, helping to align seconds to the mainstream market.
 
The sector is certainly a competitive one; rates are the ‘best ever’ and more and more entrants are continuing to enter the marketplace. After the directive comes into force on 21st March, the number of intermediaries advising on second charges will likely see a significant spike and more intermediaries and lenders will up the ante in terms of what they can offer. This is because one size does not fit all when it comes to financing; everyone requires bespoke solutions due to their specific circumstances and requirements.

An inclusive marketplace
 
There is also the addition of more and more lenders offering buy-to-let second charge loans which essentially means there are even more transactions that can, at the very least, be considered for second charge. Therefore, it is imperative that the second charge sector continues to work hard in order to build on consumer confidence by providing competitive products, maintaining its positive reputation, striving to cater for every type of borrower and, more importantly, continuing to engage and educate the ever-growing intermediary community.
 
Attributed to Bradley Moore, Director of Second Charge Loans at Brightstar 




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