"There will be some borrowers who are not aware that second charge, and the equity in their property, is an option for paying off their tax bill."
The start of a new year also marks the start of tax return season. All sorts of taxpayers across the country, from the self-employed to those with varied income arrangements, will need to not only submit a tax return to HM Revenue & Customs (HMRC) but pay it too, along with the first payment on account for the current tax year.
There are various ways that those who need to file a tax return go about it. Some have an interesting sense of timing - figures released by HMRC have shown that 3,275 taxpayers submitted their returns on Christmas Day for example, while a further 129 submitted their returns between midnight and 1am at the turn of the new year.
It’s not just timings where taxpayers will adopt their own approach, but how they go about paying it too. Some will take the long-term view, saving money throughout the tax year so that when January arrives, they have the cash at their disposal to pay what they owe.
Others, however, may not be able to do this and so need to raise funds for their tax bill differently. And that’s where their property can come in.
Tapping into equity stakes
There are many different reasons homeowners might want to raise additional funds against their property. It might be that they want to carry out home improvements or consolidate debts. Indeed, January is very much the hottest time of the year for borrowers taking a fresh look at their debts and considering whether they may be able to save money by bringing them together into a single loan.
Those debts don’t just have to be around credit cards and personal loans either but can encompass unpaid tax bills too.
While remortgaging is an option for some, should they be coming to the end of their existing fixed or variable deal, that won’t always be the right choice for borrowers at a different stage of their mortgage. If they are two years into a five-year fixed rate, for example, the early repayment charge involved may be significant, let alone the likelihood that they will be moving to a more costly interest rate to boot.
That’s where second charge mortgages come into their own. This form of property loan allows the homeowner to raise money against the property, without having to touch the original mortgage at all. No early repayment charges to worry about, and no impact on the existing interest rate, are appealing considerations right now.
The equity at homeowners’ disposal
It’s worth reflecting on the greater equity stakes that many homeowners now have at their disposal, as a result of the incredible house price growth seen over the last couple of years.
According to the most recent figures from the Office for National Statistics, house prices rose by 12.6% over the year to October 2022, taking them to an average of £296,000. In cash terms, that means the typical property gained £33,000 in value over the preceding 12 months, which itself followed incredible price rises even during the height of Covid.
As a result, many homeowners have seen the amount of equity they hold in their property grow substantially. In an ideal world they may utilise that increased equity by taking advantage of lower loan-to-value mortgage deals when the time comes to remortgage.
However, as brokers know only too well, there will be plenty of times when their customers need to make the most of that equity for some other purpose - it won’t just be for home improvements and debt consolidation, but in some cases tax bills too.
Building relationships
There will be some borrowers who are not aware that second charge, and the equity in their property, is an option for paying off their tax bill. This offers a great opportunity for brokers to reconnect with their customers, to raise awareness of how this product can deliver for them when they need to raise funds.
Brokers do so much more than identify a competitive mortgage rate for their customers - educating borrowers about the various options open to them, and how they may vary from a traditional mortgage, is a significant part of the role and can deliver long-term benefits.
After all, brokers that can highlight these sorts of solutions to their customers are better placed to secure their business in the long run, providing a foundation for a successful advisory business not just today but in the years to come as well.
