James Rainbird is Managing Director of Pink Pig Loans
In this market, when we talk about second mortgages and their use, we tend to focus on a few key areas which is debt consolidation and / or home improvement.
Now, of course, there is a very understandable reason for this. It is a very clear fact from second charge life that most customers use seconds for one of these two things, or maybe both.
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However, in doing so, we may be reducing the focus on using the second load and not really looking at a number of other reasons why a second load product might be suitable for a customer. And that could be particularly relevant in the type of housing market we have right now.
For example, ours has been a housing market dominated by buying activity for the past 12-18 months, and although this may decline slightly after the end of this month’s stamp duty holiday (although ‘it has already been and disappeared in Wales and Scotland), there is still a considerable amount of purchase demand based on a number of factors.
In looking at the buying industry, we have to accept that buying a home doesn’t come cheap. Just getting to the point of purchase requires a large deposit in most cases, and on top of that you will need money for the stamp duty (or its regional variations) you may have need money to renovate and refurbish when you move in, and you may also have to pay back family members who would have helped you get there but ultimately want to pay back.
There are also many other reasons why you would need additional cash immediately after completion but before that the question of stamp duty or Wales land deal tax or land and property tax Scotland is often a major consideration because I think a lot of people are surprised at how much money it takes.
In addition, it is a non-negotiable item and, while of course we welcome “vacation” periods, the chances of the government getting rid of it are non-existent given the revenue it generates.
In other words, you want the house, you kind of have to find the money to pay for it and the tax that goes with it.
Now, the simple recommendation might be to try and do all of this through a first mortgage, but again, that’s easier said than done. What if you hover around a certain LTV range and borrow more money on the first load is going to see you slip into a bunch of more expensive products? This could be costly in itself, especially since mortgages tend to be longer term.
However, there are options for using seconds here, and they basically allow the client to raise additional funds after the house is completed, which can then be used to fund whatever they need.
We tend to call this ‘ambitious borrowing’ and it is often required by those who might have larger mortgages, who perhaps have higher equity, and who have greater certainty about their income levels on a mortgage. longer period.
But, it can also be used, as mentioned, for those who quickly pay off family members – maybe they borrowed the money for the stamp duty payment – and those who wish to make changes to the stamp duty. home immediately.
The products that we can access to do this at Pink Pig are really flexible, with some lenders not working on income multiples, loans available up to 100% LTV, and a much faster “deal” as the customer has access to the money in a much shorter period.
Without such options, what we tend to see are clients who go looking for unsecured debt to finance their needs. And, in many cases, we then see the customer further down when, say, their 0% contract runs out and we’re trying to figure out how we might refinance that.
Ultimately, a second post-completion charge can work so much better on so many levels and, again, what tends to happen is that the debt incurred here is replenished in two / three / five years. under the remortgage, when the property’s value may well have gone up and the worry about slipping into a more expensive LTV isn’t there at all.
What we should be trying to do with seconds now is show the art of the possible. Of course, the vast majority of cases fit with a certain structure and need, but there are many other opportunities that may work much better for the client than a direct refinance or an additional advance.
Customers are savvy enough to recognize this and it is important that advisers don’t have their blinders on when it comes to seconds or else they will miss deals and the customer will miss the right option.