Second charge products providing lifeline to businesses

New analysis from Knowledge Bank shows business owners are turning to second charge mortgages to raise capital as the Omicron variant disrupts industries across the UK. These findings come from the latest Knowledge Bank criteria tracker which found brokers were searching for ‘capital raising for business purposes’ in December.

While some of these searches may be connected to the disruption caused by staff having to isolate, there will be others using second charge mortgages for positive reasons, such as to make improvements or renovations to offices. With the shift to working from home prevalent across industries, some businesses are reassessing their office needs and re-organising spaces to maximise efficiency.

Knowledge Bank’s industry leading criteria tracker shows the searches that brokers are actually conducting on behalf of their clients. In December it showed, alongside raising money for business purposes, brokers were also searching for ‘capital raising for debt consolidation’. This provides further evidence that some individuals have struggled financially due to the disruption caused by the pandemic.

Searches in the buy-to-let and residential sectors remained relatively stable from November. With house prices still rising, searches for ‘maximum age at end of term’ and ‘income multiple used for affordability assessment’ were both popular in the residential market.

While age related searches are common for residential products, maximum age is rarely searched a factor in the buy-to-let market. However, December marked the first month ever in which ‘maximum age at end of term’ featured in the most-searched terms in the buy-to-let market.

With the stock market still relatively volatile and house prices continuing to rise, some older investors may be looking to the buy-to-let market as an integral part of their retirement planning.

In the equity release sector leaseholds were of interest to brokers and their clients. This perhaps was sparked by the second reading of the Leasehold Reform (Ground Rent) Bill in the House of Commons which took place on the 29th November last year. The bill is set to put an end to ground rents for new and qualifying long residential leasehold properties.

Of particular interest was any remaining leasehold, with brokers searching for ‘leasehold remaining at end of mortgage’ and ‘leasehold remaining at beginning of term’. Some of the borrowers looking to use equity release may be looking to use the funds to undertake fire safety measures, such as removal of cladding and expensive waking watches.

Recently there has been some positive news for leaseholders living in high-rise properties as the housing secretary, Michael Gove, has said “no leaseholder living in a building above 11m, will ever face any costs for fixing dangerous cladding”.

Alongside those looking to release equity in their existing homes, there is a growing trend of borrowers looking to build their own homes. According to self-build specialist BuildLoan, self-build mortgage enquiries have increased over the past year. This uptick has been partially fuelled by government schemes and new legislation such as the Right to Build, and brokers searched for ‘lend against land’ and ‘interest only during build’ in December.

The former may be as a result of the announcement by the Chancellor in the Autumn Budget that £1.8bn of funding will be made available to unlock 1,500 hectares of brownfield land for developments.

Regulated bridging’ remains a popular search in the bridging market, with December marking the seventh time in the previous eight months that it has occupied the top-searched spot. Buyers still outnumber sellers considerably and, as a result, some are using bridging loans to purchase a property before theirs has sold.

Matthew Corker, operations director at Knowledge Bank explained, “By looking at the searches brokers conducted in December, it is clear many business owners were looking to use property to raise capital. The interesting question is why?

“These searches could indicate disruption caused by the pandemic is still harming a number of industries. However, the flip side is that some of these businesses may be using second charge mortgages to adapt and take advantage of opportunities.

“Alongside using second charge loans for business purposes, more and more borrowers are looking into the option of building their own home. The relaxed rules around brownfield sites announced in the Autumn Budget may have sparked the interest in lending against land, as the changes will result in more opportunities for self-building.

“Searches in the bridging sector were predominantly for regulated loans, as despite the end of the stamp duty holiday, buyers are still under pressure as sellers now have a choice of bids. Those that have already agreed a bridging loan are therefore well-placed as they can move regardless of when their property sells.”