The second charge mortgage market is continuing to experience rapid growth, underpinned by significant economic and social changes over the past two and a half years.

Data from the Finance & Leasing Association shows the market added £130m-worth of new business in June 2022, which marks a 29% increase compared to the same month in 2021.

Customers must use all the tools at their disposal

New-business volumes are also up, year on year — by 44% for the three months to June and 61% annually. The 30,849 new agreements for the year to June surpassed the pre-pandemic peak for the first time as more and more people considered second charge mortgages.

Post-Covid economic factors

There are evident economic factors in this gathering momentum.

First, many homeowners saw the value of their property soar — due to pent-up buyer demand — after the first wave of restrictions imposed on the nation in 2020 were eased.

Debt consolidation helps homeowners benefit from streamlining and often even reducing their overall debt repayments

The stamp duty cut acted as a further stimulant, while the ‘race for space’ also saw more homebuyers covet larger, more rural properties, pushing up prices in areas outside major cities.

Low interest rates at the time encouraged homeowners to lock in longer-term, fixed-rate deals, providing cheaper (and higher) borrowing for both first-time buyers and remortgages.

Now, with mortgage rates ticking up inexorably, remortgaging is increasingly unattractive for those looking to unlock additional funds from bricks and mortar. Moving on to a higher rate and paying a potentially hefty early repayment charge at the same time are strong deterrents. Second charge mortgages provide an attractive alternative in the secured lending space.

Second charge mortgages may not be suitable in every circumstance

The cost-of-living crisis is proving to be a further driver of growth in the second charge mortgage sector. Increasingly, we are seeing customers use our marketplace and speak to our professional advisers about taking out a second charge mortgage as a way of easing financial pressures by consolidating existing debt.

Debt consolidation helps homeowners benefit from streamlining and often even reducing their overall debt repayments to create some extra flexibility in their financial situation.

Tech innovation

The second charge mortgage sector and the technology that powers it are evolving rapidly to meet this rise in demand from homeowners.

Online marketplaces have developed systems to enable customers to shop around just for the rates they are eligible for. It takes away the potential for rejected applications that may cause anxiety, either just from the fact of being declined or in the damage it inflicts upon customers’ credit scores and their consequent chances of finding affordable borrowing products.

The cost-of-living crisis is proving to be a further driver of growth in the second charge mortgage sector

It means homeowners can be confident they are getting the best deal and are able to receive regulated, impartial advice that considers their overall financial situation.

Confidence

Despite the cost-of-living crisis, second charge mortgages may not be suitable in every circumstance. Hence getting good advice is crucial to both outcomes and confidence in the industry.

The next 18 months will pose significant challenges for household budgets, homeowners and possibly even the property market itself.

With rates ticking up, remortgaging is unattractive

Ensuring customers are making use of all the tools at their disposal will be critical — not just for second charge mortgages but throughout their personal finances.

Shopping around, taking a holistic view of their entire financial situation and getting professional, regulated advice throughout the second charge mortgage process will be important in getting through this difficult period and coming out the other side on a stable financial footing with confidence for the future.

Andrew Fisher is chief commercial officer at Freedom Finance