Marie Grundy, Managing Director, Second Charge Mortgages, West One Loans
1, Have you seen much demand for your second charge Bank of Mum and Dad product since you launched it in December?
The introduction of criteria to support a second charge Bank of Mum and Dad product has created significant interest from intermediaries who previously may never have considered that a second charge could be used for this purpose.
Our product innovation around the increasing necessity for family members to support children or grandchildren has really struck a chord with brokers who are working with first time buyers to help them take their first steps into property ownership.
It also really highlights the synergy between the first and second mortgage markets and the diverse range of loan purposes available. The use of a second mortgage to support property purchases in general is becoming increasingly popular, particularly as we approach the stamp duty deadline which is benefitting both home movers and property investors who can tap into equity from both residential and buy to let properties.
2, What makes it different to a regular second charge?
There is no real difference at all. We have simply identified an area of the mortgage market that could benefit from considering a second charge as part of a family assisted purchase. I think it goes to show that the outdated perceptions often associated with second charges are exactly that – outdated!
The relevance of second charges is increasing all the time particularly in a post-covid world and this is a great example of why second charges should always be part of the advice conversation.
3, What type of borrower (parent) would the product be suitable for? And likewise, not suitable for?
There may be parents or grandparents who are keen to provide financial support for younger family members without disturbing their savings and investments.
Alternatively, they may be looking at ways to increase the financial support available by releasing equity in their property or provide access to inheritance funds at an earlier stage.
As with all regulated mortgage contracts, it is essential that an adviser explores the needs and circumstances of potential borrowers to establish suitability of advice.
So for borrowers who would put themselves under financial strain or who would be in a worse position by taking out a second mortgage are likely to be unsuitable for this type of product.
4, Do you expect more lenders to launch similar initiatives?
I really hope so. It would be great to see more innovation in general from lenders across the mortgage market but hopefully West One have made other lenders more aware of the opportunities to take a more active role in making second charges more accessible and relevant to the financial services market as a whole.
5, Have/do you expect to encounter any problems from first-charge lenders in terms of accepting a parental second charge as a deposit?
We wouldn’t anticipate that this would be treated differently to any other type of gifted deposit purchase but we would always recommend advisers carry out the usual research in respect of product eligibility.
Vox pop question;
Are there options in the second charge market for covid-hit mortgage borrowers who have been turned down by the high street?
The pandemic has created some additional challenges for some borrowers who are looking to raise additional funds.
As with all specialist lending products the distinct advantage is that there is a more bespoke underwriting approach in place that often allows for a more in-depth assessment of an individual’s circumstances rather than decisions based purely on credit score.
An example of this is where lenders vary credit scores to relieve pressure on service levels meaning some borrowers who had previously been accepted were being declined through no fault of their own.
Self employed borrowers are also finding it tougher with some high street lenders introducing some further restrictions particularly around LTVs and more stringent affordability tests.
It is essential that long term affordability can be established for any mortgage, whether that is a first or a second, but again as a specialist lender there is the opportunity to develop a more in-depth understanding of the borrowers circumstances when arriving at lending decisions.
We have also seen strong demand for home improvement loans particularly for high net worth borrowers who are looking to fund substantial refurbishment projects. For borrowers who need greater flexibility with respect to loan size a second charge can be a great option.
At West One, we can consider loans up to £500,000 at 65% loan to value which lends itself well to those borrowers typically with higher value properties on substantial incomes who may not be able to raise this amount via the more traditional remortgage or further advance route.