Tim Wheeldon, joint managing director at Fluent Money, has responded to the belief that second charge loans are too expensive.
He insists that intermediaries need to look below the surface before making recommendations which might not be in their clients’ best interests.
He said: “On the face of it, secured loans look expensive against the headline grabbing rates of 1.99% or less that the mortgage industry is so keen to talk about. However, less is said about the high completion and administration fees charged by mortgage lenders. Those charges can be up to £3,000 on a remortgage. Put into context, these can more than dwarf the costs associated with a second charge loan. So when brokers are talking about what is expensive, it is worthwhile doing a proper comparison before turning away from a second charge loan.
“However, there are other important factors that need to be taken into account when judging a secured loan against a remortgage. Now that the regulator is insisting that brokers show clients that a secured loan should be considered, it is important that brokers do not just continue to ignore them because of the ‘cost’ argument.”
Wheeldon says questions that every broker should be asking are as follows:
- Has the client’s credit profile deteriorated since they took out a mortgage?
- Has the client recently gone self employed, moved jobs or had a string of short lived appointments?
- Are there financial penalties to pay for leaving the current mortgage?
- Does the client want to repay the extra funding over a short to medium term?
If the answer to these questions is “yes”, then a second charge loan should be a serious consideration.
- Does the client want to pay direct set up costs? Legal charges, valuation, completion fees etc.
- Does your client have the time to wait for a remortgage to complete?
- Did you know that secured loan rates now start from c.4.5%?
If the answer to those questions is “no” then a second charge loan has got to be a potential contender, he says.
Wheeldon added: “It is hugely important that brokers assess the merits of a remortgage and second charge loan without prejudice. Most advisers I speak to are prepared to approach this topic with an open mind and have benefitted their clients by being able to see where a second charge loan is the best option.”