‘I don’t do second charges.’ It’s a phrase I continue to hear from brokers more often than you’d expect.

Sometimes it’s followed up with, ‘I don’t get any enquiries about second charges.’

And my response is always the same: you do speak on a regular basis to clients who have a capital-raising requirement — you just need to spot the opportunity where a second charge mortgage is the most appropriate solution.

“I can’t imagine that any client would approach their broker and say, ‘I want a second charge mortgage.’ That’s not how it works.”

What clients typically say is that they want to borrow more money, and it’s up to the broker to find the most suitable solution for them. If you’re not considering second charge mortgages as part of your advice process, you could be doing your client a disservice.

“Pick up the phone to an expert. That’s why they’re there”

When raising capital secured on a property, there are three main options: a remortgage, a further advance or a second charge mortgage. Most brokers instinctively turn to a remortgage or a further advance, but there are many scenarios where these simply aren’t appropriate or available.

A remortgage may not be the right choice if the client is on an existing deal with significant early repayment charges that make switching costly.

They may have a competitive low-rate lifetime tracker that they don’t want to lose, although these are fewer nowadays.

They may be currently paying their mortgage on an interest-only basis and switching would require them to move to capital repayment, which they may not want. The lender’s affordability criteria may mean they can’t extend their borrowing, or they may have racked up missed payments or adverse credit since taking out their mortgage, making a full remortgage difficult or costly.

“As more brokers start recognising the role that second charge mortgages can play, we’re seeing more lenders enter the space”

A further advance may not be an option if the client’s lender doesn’t offer further advances, if the affordability assessment doesn’t work for the additional borrowing, if the lender doesn’t accept the loan purpose — as is sometimes the case for debt consolidation — or if the borrower has a blip on their credit record that the lender isn’t comfortable with.

Extra tool in the box

In all of these cases, a second charge mortgage provides an alternative that enables your client to raise the funds they need without disturbing their first charge mortgage.

“Most brokers instinctively turn to a remortgage or a further advance”

Think of a second charge mortgage as another tool in your toolbox. You wouldn’t limit yourself to using just one tool when fixing a problem — you’d assess the situation and use the right one for the job.

The same applies when helping clients who need to raise capital. If you’re considering only a remortgage or a further advance, you’re missing out on opportunities to provide the best solution or, in some cases, any solution at all.

Versatility

The most popular uses for second charge mortgages continue to be home improvements and debt consolidation. However, they can be used for almost any legal purpose, making them an extremely versatile solution.

“Think of a second charge mortgage as another tool in your toolbox”

And here’s the best part — you don’t need to be an expert in second charge mortgages to offer them to your clients. You just need to be able to spot the opportunity.

If you have clients for whom a second charge mortgage is the best option — and you will have — pick up the phone to an expert and lean on their expertise to get your client the right solution. That’s what they’re there for.

We work every day with brokers who once said, ‘I don’t do second charges’ but now regularly incorporate them into their advice process. Why? They’ve seen first hand how a second charge mortgage can be the best, and sometimes only, solution for their clients.

Consumer education around second charge mortgages is still limited, which means it’s down to brokers to provide guidance and ensure their clients are fully aware of their options.

“I can’t imagine that any client would approach their broker and say, ‘I want a second charge mortgage.’ That’s not how it works”

The market is constantly evolving and, as more brokers start recognising the role that second charge mortgages can play, we’re seeing more lenders enter the space, with increased competition leading to keener rates and more inclusive criteria. This is only going to continue, making second charge mortgages a more mainstream solution than ever.

So, the next time you find yourself thinking, ‘I don’t do second charges,’ ask yourself this — is it really that you don’t do them, or that you’re in the habit of not considering them?

Because the reality is, you do second charges — you just need to recognise when they’re the right solution for your clients.

Stewart Simpson is a second charge specialist at Brightstar Financial