An increasing number of astute finance brokers, who have never considered offering a secured loan product, are adding them to their portfolio. Unlike some brokers where a remortgage is often the first and may be the only advice offered, these more informed brokers are recognising the benefits of using the second charge option.
Recognising the potential
Often a second charge is better advice when the finance broker considers the current credit and financial status of their client, their affordability, the amount, purpose and term for which the loan is required and importantly, the total amount the client will repay over the period. Remuneration is also a key consideration for the finance broker. What may be a surprise to some is that a small secured loan can often provide a larger income than a medium to large re-mortgage, while providing the ideal solution for their client.
Unrestrictive lending
criteria
The market has no limitation in terms of the clients’ status. Lenders have assessed their risk as they look to capitalise on this opportunity and have chosen to provide solutions for those with excellent credit ratings ranging to those who have an exceptionally poor adverse credit history. Some lenders offer up to 125 per cent of the property value, while other lenders will accept any amount of mortgage arrears and CCJs. Bankrupts are accepted immediately as they are discharged, clients in receipt of DSS benefits and those for whom the DSS are paying the mortgage interest are also catered for.
Restrictions on property type, usage, stage of development or condition are minimal. There are specialist lenders who will consider all situations.
Certain lenders have expanded their product portfolio considerably to provide the ideal solution for clients where their income, credit history, or property, does not meet the usual lending criteria of the vast majority of the finance market.
Reducing processing time and costs
‘Bypass schemes’ have been developed by the more innovative lenders to improve the speed of the completion and reduce costs incurred by finance brokers. Valuations often are not required as Hometrack real-time valuations are accepted instead. Mortgage references in many instances are not needed as the lender will accept the balance reported on a Credit Bureau search. Arrears and redemption figure bypass schemes are also offered.
‘Equitable charge’ plans are available for cases where consent has been declined from conforming and non-conforming first charge lenders, due to mortgage arrears or if the mortgage is less than six months old. Brokers can use this facility to speed up the application or even save the case.
There are many other innovative products in the market including interest only, three months interest free payment holiday, discounted rates, cashback, and buy-to-let.
Secured loans for the short-term
Secured loans can also be used for short-term finance for 12 months or less for any purpose, as long as the vehicle to pay off the loan is known, for example, the client may be waiting for an endowment to pay out, waiting for inheritance or about to sell the property.
The uses for this short-term secured lending are many:
Raise finance on one property as a second charge while looking to purchase another.
Clients may have the opportunity to purchase a property at a price less than market value and have limited funds to place as a deposit for mortgage purposes. A bridging facility is the ideal vehicle to make the purchase at the reduced price and then re-mortgage on the market valuation.
There are restricted timescales to obtain funds, e.g. buying at auction or finance after auction. Often completion is within 28 days of deposit.
The client is converting or refurbishing the property with a view to immediate sale so only requires short-term funds.
The property needs to be refurbished before the client can take out a longer term mortgage, e.g. buy-to-let.
The property is un-mortgageable at present, e.g. clients with a non-standard construction property can take out a bridging loan to finance putting a brick skin on the property to obtain the PRC certificate and remortgage at a lower rate.
Waiting for probate. Capital is raised on a bridging loan until the will has been executed and then the inherited property remortgaged.
Funds can be used to discharge bankrupts, clear Individual Voluntary Arrangements (IVAs), stave off bankruptcy or repossession. Payments can be rolled up and then a remortgage completed. Bridging finance can also help to re-establish the client’s credit rating and provides the opportunity for the customer to obtain a more favorable long-term interest rate.
Commercial secured loans
The demand for second charges has not only increased for clients securing loans on their residential homes but also for those requiring semi-commercial and commercial finance. This growth has led to companies developing second charge secured term and bridging finance products for the commercial sector as well as the residential market.
Secured loans provide brokers with versatile solutions, with unrestrictive criteria on property, client status or purpose, with funding from £3,000 for one month to 25 years. There is an increasing choice of innovative products as more lenders enter the market. Second charges offer great earning potential and the ability to provide the client with a quick service and best products, with no hassle or up-front fees. By saving clients money, brokers will obviously develop long-term relationships for the future.
