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Do you expect to see less or more second charge mortgage lenders in 2018?

Three things you didn’t know you could use a second charge mortgage for

Ian Scarrott

These smart seconds solutions are well worth having in your toolbox, says Ian Scarrott, head of sales at TFC Homeloans.

You all know the main uses of a second charge mortgage by now.

Don’t worry, this isn’t yet another article on how seconds can help your client keep that great rate or avoid those ERCs.

At TFC, we’ve found that these products have a lot more going for them than the obvious.

We don’t come across these scenarios every day, but sometimes a second is the perfect fit, even when it’s not necessarily the first option that springs to mind.

1. Better than a bridge?

We regularly do second charge cases that could have been bridging deals.

Last week, for example, we had a £300,000 bridging loan request for development purposes. I quickly showed the broker and their client it would work better as a second.

The bridge would have been 9% (0.75% a month) over an 18-month period, and we did it as a second for 6%, so the client saved massively on the rate.

But the best saving was on fees. Because TFC charges a low flat fee on all mortgages (along with a handful of other packagers), he paid just £495, so saved over £9,000. He didn’t have to pay the 2% lender fee, £3,000 packager fee and £1,000 estimated legal fees that he would have incurred on the bridge.

And we did it all within a week.

Never assume that if a deal needs doing quickly it has to be a bridge. Seconds can be done in under two weeks and very often under a week.

2. Get a bankruptcy annulled

This is a brilliant use of a second that can really save your client money and improve their financial prospects.

We recently had a client who’d been made bankrupt over a £30,000 debt, because he’d buried his head in the sand and pretended it would go away rather than dealing with his financial issues. Sound familiar?

It wouldn’t be unusual for that £30,000 debt to have ultimately cost him £55,000, when you take into account court fees and trustees costs. And, of course, it would have run its course and stayed on his credit record for six years.

Most people think you can’t lend to someone who is bankrupt, but in some circumstances you can, and we arranged a second charge loan for him.

And the best thing? As long as you pay off every single penny that is incorporated into the bankruptcy, the judge is often minded to not only discharge the bankruptcy, but to annul it.

Now, rather than spending £55,000 and having a bankruptcy on record for six years, the client has a second charge rate of 13.4% with no tie-ins. As far as his credit history goes, he hasn’t been made bankrupt, because the transaction has been reversed, and in two years he’ll be able to remortgage to a near prime lender.

3. Not just small amounts

Seconds are typically thought of as a £50,000 addition to the mortgage – perhaps to consolidate debt. And this is a common use.

But we frequently arrange large second charge mortgages. We recently did one at £650,000, for example, for a client who was doing an extensive refurbishment to a high-value property he was planning to sell the following year.

Whether your client needs to raise capital to fund development, buy a property abroad, invest in their business or even buy a business, a second charge is sometimes the right answer. And, of course, they are available on buy-to-let, commercial and residential properties.

Second look

When I think about seconds, five things stand out:

  1. Speed – TFC completes within 10 days, and often quicker
  2. Low fees – especially through a packager with a flat fee structure
  3. Accessibility – can be used for any legal purpose
  4. Flexibility – Available from £5,000 to £1m
  5. Penalty-free – the majority still have no ERCs.

Add those things up and seconds start to look like a fast, flexible and cheap product that can be used for a lot of different purposes, not just those you were already aware of.

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