As we move into 2025, the second charge mortgage market is primed for growth, with rising consumer awareness and an economic environment that makes second charge borrowing an attractive way of raising capital for many customers.
Household finances remain under pressure. With a higher interest rate environment than when many homeowners took their current mortgage deal, borrowers are reluctant to disturb their current mortgage arrangements.
Insights from the recent 2024 Pepper Money Specialist Lending Study underline the growing importance of second charge mortgages in meeting a variety of financial needs. While the market has historically been driven by borrowers looking to fund home improvements or consolidate debts, the study reveals that people are now considering second charge mortgages for a wider range of purposes.
For instance, 51% of respondents said they would use a second charge for home improvements. In comparison, 30% indicated they would consider this option for debt consolidation – still the two most common reasons for taking out a second charge mortgage. However, other significant use cases are emerging, reflecting the evolving financial priorities of today’s customers.
Second charge growth areas
One key area of growth is funding education. According to the study, 13% of people would consider using a second charge mortgage to cover education costs, a figure that rises to 23% in London. It’s reasonable to expect further growth in demand for this purpose, as private school fees will now be subject to VAT at the standard 20% rate for school terms beginning on or after 1 January 2025 – providing substantial additional cost for those parents with children in private education.
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Additionally, university tuition fees will increase for new students entering higher education from 2025. These changes are set to place further financial strain on families, prompting many to explore alternative ways to fund their children’s education. For parents seeking to manage these rising costs, a second charge mortgage could offer an effective way to release equity and invest in their children’s future.
Beyond education, the study highlights other emerging uses. For example, 19% of respondents said they would consider a second charge to help a family member buy a home, providing them with a deposit. Another 16% would use it to fund a deposit on an additional property, and an equal percentage would use it to invest in a business. These findings underscore the increasing versatility of second charge mortgages, which are no longer seen purely as tools for home improvements or debt management, but as flexible financial products that can support a wide range of goals.
Competition for borrowers on the up
The increasing demand for second charge mortgages is also being supported by greater competition among lenders, with new lenders entering the market. This competition is driving innovation, improving product offerings, and ultimately delivering better customer outcomes.
At Pepper Money, we are committed to supporting brokers and their customers with accessible, flexible solutions that meet the diverse needs of today’s borrowers. We’ve worked hard to simplify and streamline our application processes, making second charge mortgages as straightforward and appealing as possible.
However, while the market is growing, there is still work to be done to raise awareness and educate both borrowers and brokers about the benefits. According to the study, only 13% of people would currently consider a second charge mortgage to raise funds, with the majority of respondents saying they didn’t know what approach they would take. This highlights a clear need for more education and brokers play a crucial role in the process, ensuring that second charge mortgages are part of the conversation when discussing capital-raising options with their customers.
For some borrowers, a remortgage or unsecured loan may not be the most suitable solution, and failing to present second charge mortgages as an option risks under-serving these customers.
As we look ahead to 2025, the outlook for the market is highly positive. The combination of rising demand, greater awareness, and increased competition among lenders is driving the market forward.
Borrowers are recognising the versatility of second charge mortgages, whether for funding education, making home improvements, consolidating debts, or investing in the future. For brokers, this is an opportunity to provide valuable advice and support to their customers, helping them navigate a complex financial landscape and achieve their goals.
