Plan ahead to put your clients and your business in a stronger position

by | Jan 10, 2023 | Blogs

After many years of sitting at historically low levels, mortgage rates are now rising. Those customers whose fixed rates have come to an end in the last six months and the start of 2023 will be the first to feel the pain, with the monthly cost of maintaining their mortgage increasing significantly, potentially by hundreds of pounds.

For those others, whose current deals have longer to run, the coming months may be an anxious period as they worry about whether they will be in a position to remortgage to get the best rate when the time does come.

However, this doesn’t have to be the case. Rather than simply waiting and hoping for the best, now is the time to enable and support retail customers to pursue their financial objectives, by helping them to take control of their finances, streamline their borrowing, and put themselves in the strongest possible position to secure a remortgage when their current rate does come to an end.

Brokers have a big role to play in this. You can act in good faith by being proactive and starting the conversation early with your clients. Borrowing on consumer credit hit record levels in 2022 and many households have used credit to help them tackle the cost-of-living crisis. Significant balances on rolling credit, such as credit cards and overdrafts, can negatively impact affordability when it comes to taking a mortgage, but taking action to consolidate those debts can overcome this.

If a borrower holds a number of disparate debts, they are likely paying interest on each, not to mention dealing with the pressure of managing various monthly payments. By using a second charge mortgage to release equity from their home, borrowers can streamline their debts into one monthly amount, helping to lower their monthly outgoings as well as decreasing the chance of any potential missed payments.

One question we are frequently asked by brokers who are considering this route for their clients is whether a second charge mortgage will make it harder for their clients to remortgage in the future. In fact, the opposite is true. Mortgage affordability is based on monthly outgoings, so reducing the amount spent on servicing credit, reduces those outgoings.

In addition, a second charge mortgage is a known quantity. Customers with open accounts on revolving credit have the potential to significantly increase their borrowing in the future without the need to apply for further credit. So, by paying off these accounts, and then closing them, borrowers can put themselves in a stronger position to secure the right remortgage for their circumstances.

Debt consolidation can also be a realistic route to becoming debt free as the balance will eventually be paid off if all the payments are made, so used correctly, it can be smart financial planning – reducing the cost of servicing debt and eventually paying off the balance.

Brokers who open a conversation about taking steps to proactively streamline their clients’ finances, won’t just be helping their own clients, they are also helping their own businesses.

Borrowers who are concerned about securing a remortgage are more likely to simply accept a product transfer they are offered by their existing lender, even if this isn’t the best deal available to them. This is bad for the customer, as it could cost them more and cause them foreseeable financial harm. It could see brokers losing out on business. So, brokers should think about taking action now, to work with their clients and reduce the risk of problems in the future.

The property market is likely to be quieter than in recent years in the coming months, so don’t rely on simply reacting to client enquiries. Take a proactive approach and advise your clients now for the future. If you want to be able to offer them the best options for their circumstances this means being able to access the expertise, experience, and relationships of a specialist in the second charge mortgage market.

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