Rising cost of living drives buyers to second charge products

Borrowers are turning to second charge mortgages to help alleviate financial issues, according to Knowledge Bank’s latest criteria tracker.

‘Capital raising for debt consolidation’ featured prominently in brokers’ searches in January – reflecting the rising cost of living.

Brokers also searched for ‘mortgage or secured loan arrears or defaults’, demonstrating that those who had missed payments were also looking for a second charge product.

This comes as energy and food prices spike, as brokers’ searches in the second charge market were mirrored in the residential sector with ‘defaults – registered in the last three years’ coming into the top five most-searched terms in January.

Alongside defaults, brokers were searching for ‘time in current employment’ in the residential sector.

January marked the ninth consecutive month that ‘maximum age at end of term’ was the most-searched term by brokers in the residential market. With house prices still continuing to rise, some borrowers are stretching terms past retirement age to reduce monthly payments.

The buy-to-let market is attracting new investors, with both ‘first-time landlord’ and ‘first-time buyer’ both featuring in the most-searched terms in January.

Meanwhile, searches in the bridging market focused on ‘regulated bridging’ for the third consecutive month. Regulated bridging is now consistently in the top two and has been for 18 months. This may be due to borrowers turning to bridging loans for quick purchases, or if chains have collapsed as a buyer has pulled out.

Brokers with bridging clients were also looking for ‘minimum property value’ in January and these searches suggest borrowers are using bridging loans for smaller projects or purchases, potentially looking to buy a property in need of renovation.

Searches in the commercial sector centred on ‘semi-commercial properties’. These mixed-use properties may become more common as shopping continues to shift online and businesses adopt hybrid working practices.

Knowledge Bank says these insights give a strong indication of the types of clients advisers are working with.

Operations director Matthew Corker explains that the searches demonstrate the financial difficulties facing borrowers in the UK. “While lockdowns appear to be a thing of the past, the economic impact of the pandemic is likely to continue impacting borrowers for years,” he comments.

“The cost of living is rising significantly, and some borrowers are turning to second charge products to help cope with the financial pressures.”

Corker says this was exacerbated at the end of the furlough scheme, when a number of brokers searched for time in employment. But despite economic uncertainties, the ‘jobs carousel’ is in full swing.

“Regulated bridging remains a popular search by brokers as some property owners use bridging loans to make improvements to their own homes,” he adds. “The searches for minimum property values suggests borrowers are looking at properties in cheaper parts of the UK, or considering a property in need of renovation.”