Busting the myths surrounding second charge lending

  • 18/06/2015
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Busting the myths surrounding second charge lending
As the Mortgage Credit Directive (MCD) draws nearer, perceptions surrounding second charge mortgages could be set to shift significantly.

With brokers soon to be required to make their clients aware of second charges as an option available to them, education and awareness of the secured loan market is growing.

However, there are a number of brokers who do not believe second charge loans would be a suitable solution for the types of clients they deal with.

TFC Homeloans invited Mortgage Solutions along to find out how secured loans can be a good fit for all client types.

Gary Lomax, business development manager for the North West region at Shawbrook Bank, dispelled what he believed to be some of the myths attached to the second charge market.

A survey carried out by Shawbrook at an event last year asked brokers what stopped them from writing more or any second charge loans. Never being asked by clients for a second charge mortgage and not associating their business with secured lending were among the top reasons brokers listed.

Here are some of the ways in which second charge mortgages can work for brokers, despite some common misconceptions.

‘My customers have never asked me for a second charge loan’

As Lomax explains, mostly due to a lack of awareness on behalf of the client, brokers are unlikely to get many customers who will approach them and ask for a second charge mortgage. But as the MCD brings these products more in line with first charge loans, customers will become more savvy with the internet and price comparison tools offering easily accessible information.

‘I only deal with high net worth clients’

Shawbrook’s average deal for a secured loan is just over £40,000 and growing. While this may not sound like much, the highest loan the bank completed last year was a deal based in the South of England worth just over £2m. So for a broker whose main customer base makes up high net worth clients, this type of deal could sit comfortably within their portfolio.

‘I don’t really do that type of business’

While the average mortgage broker might not choose to carry out second charge business, the broker next to them will most likely be happy to offer their client that type of business, Lomax says. A valuable client that could have been with the company for years, might then be lost to a competitor forever, so being aware of business that can help specialist clients is crucial.

‘I don’t have any sub-prime clients’

Lomax says this is a common misconception among brokers. Shawbrook has support for what it brands ‘light averse’ clients and plans for some customers who may have had problems with redundancies or missed mortgage payments during the credit crunch, but this is in the minority. The lender offers interest rates from 5% on second charge loans, while over 70% of the business it conducts in that sector is prime lending; for clients with no CCJs, no defaults, no arrears or no missed mortgage payments.

‘These customers are the trickiest to place’

Lomax explained that it became apparent that some of the customers that brokers found hardest to place, were the some of the most common customers Shawbrook lent second charge mortgages to. Adverse credit, borrowers into retirement, complex finance solutions, self-employed and interest-only were all named as being trickiest to place across the board.

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