A survey, from finance specialist Together, has revealed that a staggering 79 per cent of people in the UK could be missing out on a potential source of personal finance by being unaware of the option of a second charge mortgage.
Second charge mortgages, also referred to as a secured loan, allow homeowners to raise money using equity in their property instead of remortgaging. It’s a product widely available through specialist lenders, yet this latest research suggests few people explore them as an option when looking at ways to raise money.
Of the minority who were aware what a second charge mortgage was, 23 per cent didn’t understand the difference between this and a remortgage. Second charge mortgages have secondary priority behind your main (or first-charge) mortgage and are a secured loan, meaning they use the property as security and terms can run from three to 30 years to suit the borrower’s requirements.
In April this year, the Financial Conduct Authority (FCA) changed the regulation for second charge mortgages as part of its Mortgage Credit Directive which means they are now more strictly governed with regards to affordable lending, advice and dealing with payment difficulties, giving consumers more peace of mind. Previously they fell under the FCA’s consumer credit agreement.
Pete Ball, chief executive of personal finance at Together, said: “For some, a second charge mortgage will be a better option than a remortgage, so it’s surprising that so many consumers are unaware of what they are and how they work. There can be several reasons that a second charge might be the preferred option. For example, you may not want to extend the term on your current mortgage, or lose a good rate, particularly if your circumstances have changed or you have an interest-only mortgage that might be difficult to replace.
“We’ve seen continuing demand for this kind of loan, particularly when it comes to funding home improvements, and this could potentially increase further in light of Brexit. In the research we recently carried out, we found that almost a fifth were less likely to move house as a result of the decision to leave the EU, although 35% were planning some home improvement in the coming year, and second charge mortgages are ideal of this purpose.
“For those thinking of raising money by releasing equity in their properties, it’s important to explore both second charge and remortgages – and part of the new regulations introduced mean that those advising customers need to put both options forward. However, as our survey has shown, there’s still a long way to go in making the wider public aware of this offering.”