UK Property Finance are a whole of market, FCA Directly Authorised and Regulated Master Finance Broker & Packager, specialising in Niche property related finance products such as Second Charge loans/mortgages. We offer a wide range of finance to cover all eventualities and all at market leading rates.
Changes in regulation which commenced on the 21st March 2016, meant that second charge regulation swapped from the Consumer Credit Act (CCA) to the Financial Conduct Authority (FCA). This meant that the processing of second charge loans/mortgages by regulated mortgage brokers must now follow a similar process to that of arranging a first charge mortgage. Additionally, a borrower looking to achieve further borrowing must now be shown the cost differential between a monthly second charge loan / mortgage payment plus the current monthly first charge mortgage payment when compared with that of a full monthly remortgage payment. The information must be presented to the borrower via the use of a standard Key Facts Illustration (KFI) or European Standardised Information Sheet (ESIS) paying special attention to important details such as that any offer issued would be binding for 7 days and have a 7 day reflection or cooling off period and providing adequate explanation and disclosure on issues such as lender to lender fee and remuneration comparisons, interest rates, default handling etc .
A second charge loan / mortgage in certain circumstances, in particular when the applicant has an advantageously low first charge interest rate mortgage, may be the most appropriate product to offer. Many current first charge mortgages were arranged prior to the 2007/8 financial crisis and track the Bank of England (BOE) base rate i.e. BOE + 0.59%. In 2007/8 when the financial crash occurred, the BOE decided to lower base rates as a way of possibly curbing the effects of a potential recession. Due to this, since 2007/8, the BOE base interest rates have steadily reduced to its current, historically low level.
For instance, if an applicant arranged a £200,000 interest only BOE base rate tracker mortgage in July 2007, the chargeable interest rate at BOE + 0.59%, would have been:
On £200,000 borrowing, an applicant would have paid £1,056.67 (£200,000 x 6.34% / 12) per month, in interest alone.
The BOE base rate has now reduced to 0.25% so the applicants payable interest rate would now be:
- 25% (BOE) + 0.59% = 0.84%.
This means that on £200,000 borrowing, the applicant would now be paying a total of £140 per month in interest (£200,000 x 0.84% / 12), a saving of:
- £916.67 per month (£1,056.67 – £140).
In the above scenario, if the applicant wanted to arrange additional borrowing, it may be advantageous for them to keep the current mortgage and arrange the additional borrowing as a second charge mortgage / loan. A regulated broker would prepare a comparison for the applicant showing the 2 alternatives i.e:
- Monthly first charge mortgage payments @ 0.84% – £140
- Monthly payments on £50,000 additional borrowing requirement @ 5% – £208.33
- Total – £348.33
- Total monthly payments when remortgaging the current first charge mortgage of £200,000 plus adding the additional £50,000 borrowing requirement at a total monthly interest rate of 2.0% – £416.67
The “pro’s and con’s” of the above will be discussed with the applicant before a decision and recommendation made by the broker.
A second charge loan / mortgage is normally arranged from a different lender to the first charge mortgage but underwritten in a similar manner. Lending will only be granted when the lenders criteria on affordability, Loan to Value (LTV), credit, use of additional borrowing etc are satisfied. Each lender has a slightly different criteria and rate etc, which is a good reason for using a second charge broker, such as UK Property Finance, who will know all the criteria on offer.
Once arranged, the second charge loan / mortgage will be registered against the property title in the same way as a standard mortgage and will be repaid on a monthly basis in the same manner i.e.
- Property value – £400,000
- First charge mortgage amount – £200,000
- Monthly first charge mortgage payments – £140
- Second charge mortgage / loan amount – £50,000
- Monthly second charge mortgage / loan payments – £208.33
What is a secured loan?
Also referred to as homeowner loans, a secured loan is a long-term borrowing product that is backed up by the equity in a homeowner’s property. Unlike unsecured loans, they provide fast and convenient access to larger sums of money with lower rates of interest. In addition, a good credit score is somewhat less important with this type of finance.
What is a homeowner loan?
A homeowner loan is a secured borrowing product that is taken out using the available equity in a property owner’s home as security for the lender. If repayments are not met on time, the borrower may end up losing their property, although most secured loan providers would rather avoid this happening.
What is the difference between a secured and an unsecured loan?
With an unsecured loan, the loan provider will base their decision to lend using a borrower’s credit score without requiring any security in the form of a valuable asset such as a property. Another difference between a secured and unsecured loan is that secured loans are more readily approved with larger sums being made available.
What is an unprotected loan?
An unsecured, or unprotected loan, is a short-term financial product that does not require some type of asset as security should the borrower default. Affordable unsecured loans are usually only made available to those with high credit scores and the repayment periods are typically much shorter than with secured loan types.