Writing about 'rightsizing' what are borrowers doing to get round the downsize/rightsize issue

Journalist: Samantha Downes, Currently at the I (business editing some Sundays (freelance) and Mortgage Solutions

ended 21. June 2022

Looking for a broker angle for Mortgage Solutions - it appears  as people can’t downsize are they taking out more finance (like second charge mortgages, bridging finance) to improve their current property?

Are brokers seeing an increase in this kind of business, what advice they would give to clients looking to do this and whether they think this is a short-term or long-term trend.


6 responses from the Newspage community

With a shortage of housing stock in most areas I think people are looking again at how they achieve their dream home: if you can't buy it, can you create it? Many have simply been unable to find the property they want, or certainly at a price they can afford, so have started to look at what changes they can make to their current home; extensions, luxury kitchens, home offices at the bottom of the garden, loft conversions to create master suites, even major internal renovations with walls coming down and staircases being moved are considerations that many wouldn't have been entertaining previously, but will now - inspired by DIY SOS, Grand Designs and George Clarke among others. These types of radical changes to the living space don't come cheap, so additional borrowing in the form of remortgages, further advances, or second charges are common to make these dreams a reality. Guidance that I give to all my clients looking to do this type of work is to overestimate everything. It's far easier to borrow more than you need and then pay it back to the lender at the end of the project, than to run out of funds halfway through and have to go back cap-in-hand to request additional funds (to which the answer could well be "no").
The shortage of homes is forcing people to postpone the downsizing move to their final dream home. We have seen remortgages increase as owners begin to extend their current place. One word of advice is to ensure that you find a good broker who can give you mortgage peace of mind. Make sure that your plans are accurate and precise, that way you'll get exactly what you desire.
Great care should be taken before committing to a second charge or bridge, as these types of loans come at a higher rate than mainstream lending and often have higher fees as well. Whilst they do provide a solution to financing home improvements, consideration should be given to what the additional monthly payments are going to be and also whether you will be able to afford to remortgage the entire amount of secured borrowing when it comes to switching products.
I have certainly seen a rise in borrowers looking to release more for home improvements via a further advance or remortgage. They are looking to do this to improve their current property to include the features they wanted from their next home, but due to the current market demand they are unable to find a suitable property, or lose out to the high demand of buyers bidding on the same property or simply can't afford the new house prices. With the huge increase in property values, borrowers are finding they are able to borrow more against the increased property value to complete these home improvements. Second charges and bridging loans are an option for additional borrowing once further advances and remortgages have been ruled out. Second charges and bridging loans are an expensive form of borrowing, and usually there is a better solution which should always be explored with an experienced mortgage broker.
We have definitely seen an increase in business especially around second charge mortgages. Covid certainly has impacted a number of clients which means they now may have bad credit or, if they are self employed, their income has been impacted. If these clients already have their mortgage with a High Street lender and they require additional money for home improvements, it can sometimes be best advise them to complete a product transfer and then do the top up on a second charge. This way they can keep the main mortgage on a high street rate and then have the top up at a higher rate, rather than having to go to a more specialist lender for the whole mortgage at a higher rate. It becomes more cost effective to keep the majority of the borrowing on the high street rate. Many second charge lenders also have much higher income multiples to lend to clients. So, a first charge remortgage typically achieves a maximum 5 times their income, on a second charge they may get up to 10 times their income. Hopefully, the second charge is temporary (while either the credit improves or self employed accounts show better profits). When the mortgage comes out of its fixed rate deal the client can then remortgage and repay the second charge. I see this trend being something that is medium Term.
I've definitely seen more enquiries for further advances and remortgages to draw additional funds out for home improvements. The problem, however, that some of these clients are seeing is how hard it is to find builders and tradespeople who are available to complete the work. In addition, some clients are being put off by the increasing costs of this work. I've had two clients who applied for further advances but while it was being processed the costs were spiralling so much that they eventually decided against doing the work and put the project on hold for a couple of years.