What happens when first charge lending isn’t a viable option?

How second charge mortgages can solve these 5 challenges

As a mortgage broker, you want to do everything you can for your customers and secure the lending they need. But on occasions, you’ll be faced with circumstances that fall ‘outside of criteria’: complexity that makes first charge lending difficult to secure.

Thanks to the director-level relationships we’ve built with our lender panel over the years, Y3S has access to second charge deals that other brokers are often not even aware of, helping you and your customers secure the lending they need.

Our first article looked at 5 challenges commonly faced by brokers and their customers in securing first charge loans. In this second article, we look at scenarios 6 to 10 in which second charge mortgages can again save the day.

Second Charge Loans

The optimum alternative to a remortgage or a further advance

Loans from £10,000
Lowest rate guarantee
Up to 110% LTV
Residential and buy-to-let
Low ERCs available

Scenario 6: The applicant may lose the low interest rate on their mortgage

This is especially relevant in the current climate, where interest rates continue to rise. Millions of people have a very low interest rate, which they risk losing if they remortgage. A second charge mortgage allows the customer to raise the money while protecting this rate.

Case Study

With a property worth £1,200,000 and an interest-only mortgage of £600,000, the customer had an exceptional rate of just 0.49% above base rate and paid just over £400 per month. With a growing young family and not wanting to move, they needed £100,000 to extend their home. They approached their mortgage company and were told their only option was to remortgage onto a capital repayment basis at a rate of 2.29%. The new £700,000 mortgage would cost £3,067 a month, more than seven times their existing monthly repayments, which was totally unaffordable.

Y3S were able to secure a second charge mortgage of £100,000 on a 5 year fixed rate of 5.2% over 25 years, with monthly payments of £632. This saved them £2,000 a month compared with remortgaging, whilst also enabling them to retain their existing interest-only rate of 0.49%.

Scenario 7: The applicant has recently become self-employed

High street lenders consider self-employed applicants a very high risk. Most will require two years of audited accounts, along with an impeccable credit file. Second charge lenders take a more pragmatic approach, and will work off income evidence (such as an accountant’s reference, SA302s and, in some cases, bank statements). Once the applicant has built up a track record, they can then remortgage, typically paying just one month’s interest to do so.

Case Study

A GP needed to borrow £250,000 to buy into the business practice’s premises. She had recently become a self-employed partner with a 33.3% shareholding. As she had been self-employed for less than 3 months, mainstream lenders would not consider her application.

Y3S firstly ensured the lender understood the applicant’s merits, providing 2 years’ full company accounts, her last 2 remittance slips and banks statements, combined with a letter from her accountant confirming the expected salary and dividends for the current financial year.

Her many years of experience, together with the very well-established practice, satisfied the lender that the applicant could afford the payments and so lent the full amount, subsequently further increasing the customer’s income through the rental income from the NHS.

Scenario 8: The applicant has a ‘non-standard’ property

Whether it’s the type of construction, the number of people living at the property or even a business being registered there, non-standard properties cause concern for high street lenders and can lead to declined applications. Specialist second charge lenders take a more pragmatic view though and provide a very useful source of funding.

Case Study

The customer owned a beautiful, Grade 2 listed abandoned mill which had restrictions in place for commercial use, fully documented on the property’s land registry report. Unfortunately, no high street lender would fund the money required for refurbishment.

Y3S sourced a lender who was comfortable as a result of most of the land being used for residential purposes, evidenced in the valuation report. The loan was secured on a rate of 7.4%.

Scenario 9: The applicant is considered ‘over-indebted’

Even when customers seem strong contenders for a mortgage application, numerous lines of credit can frequently lead to them being considered ‘over-indebted’. They are automatically declined by mainstream lenders.

Over two in three Y3S customers take out a second charge mortgage for debt consolidation purposes. We provide an essential service for many who believe they can’t get the help they need.

Case Study

Whilst self-building their £1.2 million dream home, a customer had accumulated unsecured debt totalling £46,000 and needed an additional £100,000 to complete the project. He approached his lender who refused him on the grounds of having too much credit, despite never missing a payment and earning over £250,000 a year.

Y3S raised the full amount on a rate of 5.9% over 21 years, with a monthly payment of £1,239.

Scenario 10: A landlord wishing to increase their property portfolio

Landlords often want to increase their portfolio and need to raise capital to make a deposit. Mainstream lenders often do not allow this, especially if they consider the applicant already has a high amount of debt alongside their buy-to-let properties. Raising the money to purchase a buy-to-let is an accepted loan purpose on a second charge basis; and every month we help people extend their buy-to-let investment portfolios in this way.

Case Study

The applicant had negotiated a good price on a buy-to-let investment property to add to her existing portfolio of three properties. She wanted to raise £120,000 using her home as security.

Y3S sourced a lender charging a rate of just 7%, paying a fixed repayment of £812 a month, without any early redemption charges.

The UK’s largest specialist finance packager is ready to take care of your next case

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Completely taken care of

Y3S has been the finance intermediary’s packager of choice for specialist finance solutions since 2001, packaging billions of pounds of specialist mortgage enquiries on behalf of the country’s most established lenders.

Our business is built on delivering a service that’s unrivalled in the market, focused entirely on securing the finance your customer needs. Find out more about how we take complete care of you and your customers.

Call 0800 014 7797 to speak to one of the team or get a quote online.

Have you read the first article in this series? Find it here, with five other complex client scenarios where second charge loans can be the answer.

Why use Y3S?

A business based on reputation..

Established for over 20 years, all customers have been referred to us from financial intermediaries throughout the UK. Service is our focus, ensuring repeat business from our valued introducers, and referrals from our customers.

… with a focus on speed of service …

As most people want funds as quickly as possible, our courier service is of paramount importance. As being the only firm in the UK to offer this as standard, all documents are despatched and collected using our in-house team couriers, greatly speeding up turn around times.