Investors switching to second charge market for funding as demand for BTL soars

Property Reporter
12th April 2021
To Let 555

Investors and homeowners are utilising second charge mortgages to raise money to invest in buy-to-let properties, reflecting the soaring demand for rental properties and the current financial landscape as we emerge from lockdown.

The findings are part of new research from criteria search specialist, Knowledge Bank, who also revealed that home improvements and consolidating debt were also highly searched for during March.

According to the data, capital raising featured in three of the top five most searched terms in the second charge market in March. The reasons for this capital raising varied greatly, however. The second highest-searched term was ‘Capital raising to purchase a buy-to-let’, which follows the trend of investors looking to purchase rental properties as the stock market remains volatile and demand for rental property soars.

‘Capital raising for home improvements’ was fourth on the most searched terms’ list. This is potentially due to homeowners looking to renovate, add an extension, or build an office in the garden, possibly as a result of an extended period working from home. Brokers were also searching for ‘Capital raising for debt consolidation’, which landed at number five on the most searched for terms. This suggests there are clients looking to secure unsecured debts against their home to bring all their debts into one place and take advantage of the lower interest rate they will pay.

The variety of searches in the second charge market appear to be a reflection of the wider economic situation in the UK. Since the start of the pandemic, there has been a split, with those in stable employment able to save and invest due to the lack of opportunities to go on holiday or take advantage of hospitality venues; whereas those who have been hit hardest, have struggled financially and need to secure debt.

In the residential market, as the Chancellor announced an extension to the job support scheme ‘Furloughed workers’ was the most searched term for the third month in a row.

Throughout 2021, there has also been consistent interest in ‘Income multiple used for affordability assessment’, and this continued in March. This suggests despite the return of 95% loan to value (LTV) mortgages, homeowners are still looking to maximise the amount they can borrow. For the first time this year, however, there was a search in the top five for lenders who would offer a mortgage to people with ‘Defaults - satisfied in the last three years’. This highlights that debt held by some of the UK’s population is not a new problem.

Demonstrating the continued interest in the buy-to-let sector, ‘First-time landlords’ was the top criteria searched by intermediaries for the second consecutive month. ‘Lending to limited companies’ featured in the top five terms searched, and has been a constant since July 2018. This is due to changes set out by the government in the 2017 Budget, including a reduction in the amount of tax relief available for interest on buy-to-let mortgages for individuals. This policy is continuing to change the landscape of the buy-to-let market.

In the bridging sector, ‘Heavy refurbishment’ was in the top five most searched for terms for the first time since December 2020. This potentially is as a result of clients turning to bridging loans to undertake major renovations, most likely extensions or remodels on their homes. A hot topic in the industry, ‘Regulated bridging’ was the top searched term by intermediaries. This could be due to homeowners using bridging finance when a property chain has broken or to purchase a property at auction.

Matthew Corker, operations director at Knowledge Bank, comments: “The second charge market clearly demonstrates the current economic divide in the UK at the moment. There are those who have increased their savings through lockdown and are now using a larger deposit to either invest in property or add to their existing home. But there are also those who have been hit hard, either losing their job or being put on furlough.

“With extensions to the stamp duty holiday and job support scheme announced by the Chancellor during the latest Budget, lenders are continuing to adapt criteria to keep up with the evolving market. With criteria changes coming thick and fast, brokers could spend hours every day searching for the latest criteria, so using a comprehensive criteria search system can save them a massive amount of time and ensure they are providing the best advice.”

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