First charge lenders are tightening their appetite at higher LTVs, which is restricting options for capital raising by remortgaging or further advances. At the same time, home improvements are rising up the agenda for millions who spent lockdown identifying changes they wanted to make to their property, and debt consolidation is likely to become a bigger consideration for many when we emerge from the pandemic.

However, a recent poll we carried out with more than 1,000 brokers found that 74 per cent didn’t talk about second charge mortgages while working on their clients’ purchase or remortgage, or indeed at any point during the term of their product.

It’s more than four years since second charge mortgage lending came under FCA regulation and brokers have been required to consider second charges alongside other options for capital raising. So, the fact that three-quarters of brokers don’t mention second charges is certainly startling. However, this research supports the anecdotal evidence that we hear day in, day out.

A second charge mortgage will not be the right option for everyone but it will be right for some, and there are many circumstances where it is the most cost-effective and suitable solution. Take this real-life case that we recently worked on, for example.

Case study

Mr and Mrs X were in a fixed-rate period that was due to end a couple of months after the date of their enquiry. They had accrued just over £50K in unsecured credit since taking out their mortgage and were paying £1,600 per month to service the debt. They also wanted to raise an additional £6K for home improvements.

The couple approached their mortgage adviser to ask about a remortgage to consolidate their unsecured debt and raise the additional funds. However, they were declined by several first charge lenders on the basis of a failed credit score, affordability, or both. In addition, the pandemic hit and one of the clients was furloughed, which meant even the second charge mortgage route was no longer an option. However, as lenders came back into the market, we were able to identify a solution that enabled the clients to meet their borrowing objective and make significant savings on their monthly costs.

Their adviser recommended a product transfer onto a flexible fixed rate, which featured no early repayment charges and the peace of mind of having fixed monthly payments. At Brightstar, we were then able to complete a second charge mortgage that raised enough capital to clear all unsecured credit commitments plus the £6K required for home improvements.

The clients chose a five-year fix with no ERCs at a rate of 5.1 per cent. The term of the second charge mortgage was matched to the term of their main mortgage to keep payments low, and the plan is to revisit the option of remortgaging in the future to take out the second charge. As a result, Mr and Mrs X reduced their monthly payment to £325, saving a staggering £1,275 a month. In addition, as well as the satisfaction of securing a great outcome for their client, the broker was paid for the product transfer and the second charge mortgage.

There are many such circumstances where a second charge can offer a client the most cost-effective and flexible solution to meet their needs, yet as a product category it is still largely overlooked. What’s the answer?

The first response is often to call for more education. There is always an opportunity to inform brokers of the features and uses of a product that they may have been unaware of. But the most common reason for not talking about second charge given in our research was not that brokers didn’t have the right knowledge but that they didn’t have the time, or had simply forgotten.

Perhaps it’s not education that is needed but action to change behaviour and develop new habits. Numerous academic studies show that simply knowing something is often not enough; it usually takes changes to a physical environment or process to change behaviour. This is sometimes called ‘choice architecture’ or ‘nudging’, and it’s being studied with a view to promoting healthier lifestyles – but it can also promote healthier businesses.

There is a very positive message to take from our research: three-quarters of brokers have a great opportunity to boost their business levels as we move into next year. It’s widely anticipated that the purchase market will slow in 2021 with the removal of Help to Buy and the end of the stamp duty holiday, but the second charge market is set for growth as demand increases from customers who want to release capital from their home.

There’s a big opportunity in second charge mortgages but knowing about it is not enough. The key will be in taking steps to amend processes, flag reminders and encourage new conversation.

Michelle Westley is head of marketing at Brightstar Financial