Business Moneyfacts Magazine May 2025
It's time that we let go of the idea that smart borrowers with good credit are lost to the high street. These borrowers have stronger purchasing power, have proven their ability to manage debt, and are often just one good idea away from turning property equity to their advantage.
Unfortunately, most of these borrowers don't understand the potential of second charge mortgage products or have never even heard of them. This is where intermediaries become vital.
Second charge mortgages are undeniably growing in popularity. So much so that the total number of second charge completions for 2024 was 26% up from 2023. This spike has a lot to do with the versatility and cost-saving potential of second charge mortgages, and a surge in intermediaries who are coming to realise this.
I want to offer three scenarios where intermediary advice equips forward-thinking clients to pursue their goals in a financially sensible manner.
Modernising business while keeping payments viable
A well-established Midlands-based manufacturer finds itself under increasing pressure and slowly diminishing margins as new competitors emerge leveraging advanced technology to increase output.
The owner, Charles, estimates that a £200,000 investment in new machinery would restore the business's competitive edge. An asset finance provider offers a 5-year deal with monthly payments that Charles will struggle to justify to the board.
Charles considers remortgaging his main residence to release equity, but his broker advises against it due to ERC penalties, exposure to higher rates on the full mortgage, and no risk appetite from the first charge mortgage market to release funds for business purposes.
Charles almost feels defeated, but the broker suggests a second charge mortgage on Charles's main residence. With equity available and low LTV, the business could borrow £200,000 without disrupting the original mortgage.
On a 10-year deal with an initial 2-year fixed rate, monthly repayments are more acceptable, and Charles can consider refinancing the remainder of the second charge once the current fixed-rate residential mortgage deal expires.
Proactive debt consolidation
Sophie, a self-employed wedding planner in scenic North Wales, accrues £25,000 in credit card debt to cover upfront vendor costs.
The cards carry variable interest rates up to 26%, which would mean payments of over £1,000 p/m across 3 years to settle the debt. She would recoup most of that amount at the end of the wedding season but would be teetering on the edge in the short term.
Sophie is also worried that her high credit card utilisation will damage her credit score. She is considering taking out a personal loan to settle this debt, but her IFA believes there is a better option.
They remind her that she can use equity in her house to pay off the debt. She might not get approval for remortgaging since her current deal was agreed upon while she was a full-time employee at an events company. However, a second charge mortgage could be an option.
If she were to get a 5-year second charge loan with a fixed rate, she could cut her monthly repayment responsibility by nearly 50% and fully settle the unsecured debt.
This solution gives Sophie the liquidity she may need during peak season and makes repayments more manageable, without the nagging worry of credit card repayments.
Ensuring stability in the home
Florence and James have always sacrificed much to give their daughter the best education. After the recent introduction of VAT on private school fees, they find themselves at a crossroads. Increases in school fees would create financial uncertainty in the home, but they can't imagine pulling their daughter out of a school where she has become fully immersed.
They had saved up to pay fees in advance at the start of the school year and make use of a discounted rate. However, they have since been told an additional payment for the portion of the tuition after 1 January would also be charged.
They approach their IFA with this conundrum, who assesses all their options and recommends taking a second charge mortgage on their home. This will enable them to pay the additional fees and upcoming school fees, with a manageable repayment plan for the capital raised.
Second charges as strategic tools
In the above scenarios, mortgage brokers and IFAs help their clients reframe their challenges and provide strategic solutions for tackling their unique situations.
Intermediaries all around would do well to remind their clients that raising capital or managing debt shouldn't only be viewed as a last resort. In fact, when used strategically, tools like second charges can give homeowners the freedom to pursue their business-related or personal goals with the knowledge that they are doing it in the most cost-effective way.
Maintaining relationships is key to helping clients explore these kinds of opportunities. It's getting forward-thinking clients to go beyond a nonbeneficial Option A, which they might understand, to Option B, which brings better financial health.
Your guidance might just help them discover that a second charge mortgage was the Option A they needed all along.