Rising cost of living driving borrowers to second charge products

Knowledge Bank’s latest criteria tracker results reveal that borrowers are turning to second charge mortgages to help alleviate financial issues. ‘Capital raising for debt consolidation’ featured prominently in brokers’ searches in January, reflecting the rising costs of living.

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

Against a backdrop of spiking energy and food prices, 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 for the first time since last September.

Alongside defaults, brokers were searching for ‘time in current employment’ in the residential sector. This is the second consecutive month time in employment has featured significantly in brokers’ searches, suggesting there are a number of employees new in position looking for property.

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. First-time buyers looking for a foothold on the ladder may be turning to buy-to-let properties as demand for rental properties is still high and this is driving a sustained period of rents increasing.

Searches in the bridging market primarily 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.

With the changing face of the high-street, 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.

The insights that come from brokers’ searches give a strong indication of the types of clients advisers are working with. Matthew Corker, operations director at Knowledge Bank explained the searches demonstrate the financial difficulties facing borrowers in the UK. He said: “While lockdowns appear to be a thing of the past, the economic impact of the pandemic is likely to continue impacting borrowers for years.

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

“At the end of the furlough scheme there were a number of brokers searching for time in employment, and these searches have continued. Earlier in 2021 employees may have held off moving due to economic uncertainties, however it appears the jobs carousel is now 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. 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.”