Equitable charge loans are becoming a “flavour of the month” product at the moment
but many brokers don’t know much about them or the benefits.
Here’s a quick overview which may help some of your clients.
Consider the following scenarios:
- Your clients have a great deal on their first mortgage and want to raise more capital.
The mortgage company won’t grant a further advance or consent to a second charge.
Often the original lender has sold its book and the new lender withholds consent because it wants borrowers to remortgage away because the rates are so low.
- Similarly your client might have arrears so the first mortgagee won’t consent to a second charge – no further advance option and a first or second charge seemingly not an option.
- How about this? Your client has a first charge on a great deal. They also have a second charge on very good rates but have missed a payment recently. They want to raise an extra £20,000. A remortgage will lose them their great first charge deal. A second charge will lose them their great second charge deal. So how about a third charge?
In all three scenarios above Promise has lenders which instead of registering a formal second charge, they will register an equitable charge. It doesn’t give them the same level of control (eg repossession) but ensures they are repaid if the property is sold.
So, in scenario 1 and 2 a second charge would be available without consent. In scenario 3 a third charge would be available without consent.
Whilst the rates are mid teens upwards, for a small amount of capital raising, mathematically this will often work out cheaper for some borrowers or indeed the only way of raising the capital.
Lenders will accept varying amounts of adverse credit and LTV’s, loan amounts and rates range accordingly up to 150% LTV
ERC’s are low so such products can be considered a short term option but, of course, in high LTV scenarios remortgaging soon is unlikely so factor this in to the assessment of suitability.
If you have clients which may benefit from an equitable charge loan or you wish to find out more, please call your Promise underwriter.
Alternatively DIP forms and online underwriting are available on your loan portal.