How Have Mortgages Changed?

Mortgages in the UK and around the world are a very well-established concept, with mortgages comprising one of the most utilised forms of finance in the world. Millions of people in the UK have a mortgage, which will have been used for all nature of purposes ranging from paying for their place of residence, to buying an investment property to funding a business venture.

However, since the Financial Crisis that hit the UK and global markets in 2007-2009, acquiring credit and finance has not been as easy or as straightforward as it once was. Although this has made it more difficult for consumers to acquire traditional mortgages, the specialist finance market in the UK has had somewhat of a boom. Specialist property finance and specialist mortgages include the likes of:

These types of finance are generally offered by specialist lenders who have experience in these specific sectors of the property finance market. For example, you will find specific bridging lenders, second mortgage lenders and so on.

Also worth considering, is that much like mortgage lenders stipulate borrowers have insurance on their property and life insurance to cover any potential losses for the lender, so too, they may stipulate (particularly in cases of commercial and development finance) that there is sufficient property security (more information) in place prior to funding any development.

Bridging Finance

Bridging loans are one of the most widely utilised forms of specialist property finance and used correctly, they are a powerful tool to ensure property sales progress.

For example, a homeowner may be seeking to upsize their property as their family goes. Having found a new property to buy, they find a buyer for their current property to fund the deposit and initial portion of equity to purchase of their new home, for which there is competition in the market and others looking to buy it, making speed very much of the essence.

However, at the last stage of the process the buyer of their current property pulls out, leaving the homeowners with the dilemma of what to do and how they can actually fund the purchase of their new, intended property. this is where bridging finance comes in.

The bridging loan will cover the full purchase amount of their prospective new property, and will bridge the gap between the purchase of this and the sale of the initial property. Once their first property is sold, this money goes to pay off the major portion of the bridging loan, with the rest of the loan and charges being paid for by remortgaging their new home.

Second Mortgages

Second mortgages, also known as ‘second charge mortgages,’ like bridging loans are a very specific type of mortgage which as the name suggests, requires the borrower to already have a first [charge] mortgage. These mortgages work in cases where a borrower needs finance, usually for things like debt consolidation, home improvements and business funding but where they already have a mortgage.

For example, it may be the case that they have purchased a property with a first charge mortgage, only to then need to renovate the property further. The second mortgage requires the permission of the first charge lender and the property owner will also need to have acquired enough equity in the property to be able to secure the second mortgage against.

Second mortgages as you may imagine, are more costly than run-of-the-mill first charge mortgages and they are not as easily acquired, with additional charges and conditionsattached, as with many specialist property finance products.