Second charges play a vital role in financial inclusion, argues, Tony Marshall, managing director of Equifinance

Second charge mortgage new business volumes have now returned to levels last seen in 2015 according to recent FLA figures and the sector has shown tremendous resilience during a few years of significant regulatory change.
Brokers and finance intermediaries are becoming much more aware of the opportunities second charges can offer, and it’s not just the obvious uses of funding home improvements and property extensions. They can be used for so much more.
For example, there are still millions of people in the UK with unusual job types, short-term contracts, have a poor credit profile and those who are restricted by their first charge lenders not giving consent for further borrowing. There are many consumers who are restricted from mainstream lending products by virtue of some historical and unfortunate life event that created an income shock which in turn led to a deteriorating credit profile.
This can create so many issues and difficulties for customers and not just the obvious one of financial stress. For example, we have seen instances where customers have become trapped in their existing property, unable to move because they would be declined for a mainstream mortgage as a result of a poor credit profile. In extremity we have seen examples where customers’ career prospects have been severely curtailed because they are unable to move for new employment or their credit profile doesn’t meet with the requirements of their role.
Where advised and with the customer’s holistic circumstances in mind, secured loans often provide a good solution to achieve positive outcomes for customers.
When used wisely a customer may take advantage of the equity built up in their property to gain access to lower rate products to start to get their finances in shape and therefore provide them with access to mainstream and even lower priced products in the future. At Equifinance, we take care in underwriting each case individually in order to help ensure that this is achievable.

Another growing sector are those customers who, in the absence of alternative products, entered into a structured debt solution such as an IVA or DMP. Now, some years on, their financial circumstances have changed and they do not wish to carry the burden of a poor credit profile for any longer than necessary. Here we often see cases where customers would like to clear their debts and commence building a clean credit profile now rather than waiting until six years beyond the end of their debt solution. We understand that there are financial arguments against this, such as turning a debt from non-interest bearing to interest bearing. However, it is understood that invariably the customer is able to obtain reduced settlement figures in this instance, which does serve to assist in mitigating some the interest charged over the long term. That aside, the positive future effects of access to prime products, peace of mind and lifestyle limitations is difficult to measure and some customers value this over and above the financial cost of achieving it.
From a lender’s perspective, it’s important to keep a close eye on new product development to continue to cater for a wider range of client income sources and credit profiles. We’re already seeing more lenders introducing fixed rate products and considering self-employed and contractor clients. As the ‘gig economy’ continues to diversify customer income types, contracts and working practices, the industry is adapting well to social change and individually underwritten cases. We’re seeing this innovation and awareness growing the market and the FLA figures show that this array of products and market conditions has resulted in good seconds growth in 2017 which we can expect to continue this year too.
With the advantages of second charges being advised alongside first charge mortgage considerations, more homeowners are clearly opting for a secured loan to sit alongside their primary debt for a period of time to help them regain financial credibility and or fulfil their lifestyle aspirations.
Second charge mortgages are seen as a real choice for many homeowners with a need to repair their credit profile and gain access to mainstream financial products and the sector is likely to see consistently better business volumes as a result.