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Second charge loans: to disclose or to own?

by: Maeve Ward, sales and operations director, secured loans Shawbrook Bank
  • 06/07/2015
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On the 21 March 2016 the Financial Conduct Authority will implement the Mortgage Credit Directive (MCD), bringing second charge mortgages in line with first charge mortgages, as fully regulated mortgage contracts, in order to provide both consistency across the mortgage market and appropriate customer protection.

So how will this affect you as the intermediary? The directive will enforce new disclosure obligations, to ensure customers are better informed, requiring all intermediaries to make clients aware that alternative finance options may be available: with a second charge mortgage being one of those alternative financial options.

If you’re unfamiliar with second charge mortgages read on, because the MCD provides an opportunity for brokers and lenders to add real value to their business, offering a strong alternative finance solution, and leaving you best-placed to retain your clients’ business. What this means is that you can retain this business lead and the subsequent business, rather than simply passing on the lead to someone else.

Don’t let some of the myths surrounding second charge mortgages deter you – some brokers are under the impression that second charges are only intended for clients with adverse credit, and are particularly complicated to arrange – this simply is not the case. In fact many of Shawbrook’s second charge mortgage products help a variety of people, there isn’t a typical second charge customer.

Second charge mortgages are not just for those who have fallen victim to circumstance and need to rebuild their credit rating. They are becoming increasingly attractive to high net worth individuals with good credit ratings looking to raise more finance than they would be able to access through a personal loan. When Shawbrook brought their Platinum range to the market, it opened the eyes of the industry to the fact that second charge mortgages are not just for sub-prime customers but for high street customers too. With less than a year to go before the directive takes effect, this is the perfect time for intermediaries to ensure their businesses are positioned to secure future benefit for themselves and their customers through the opportunities presented through the new regulations.

Second charge mortgages vs remortgages

Whilst remortgaging remains a popular option for many customers, second charge mortgages can prove a more suitable financial solution for clients in particular circumstances. When you, the intermediary, have determined that it is not in your customer’s best interest to remain on their existing interest-only mortgage, a second charge mortgage could allow the customer to borrow additional money without the need to disturb their existing mortgage.

Early redemption charges may apply on the existing mortgage, in particular since five and 10 year fixed rates have become commonplace over the past couple of years. Customers may find themselves trapped as a result of lenders tightening criteria after the Mortgage Market Review (MMR). Customers looking to consolidate debt may need to reduce their outgoings but this doesn’t mean they should extend repayments over the length of their existing mortgage term. Second charge mortgages mean that customers can keep their existing mortgage in place, and there are no exit fees or changes to the existing mortgage terms and conditions. They also allow the customer to consolidate debts over a longer term than on an unsecured loan whilst offering the flexibility of a shorter term than that of their first charge, potentially saving them thousands of pounds in interest.

How can Shawbrook help?

As part of our dedication to supporting intermediaries, Shawbrook Bank is launching a nationwide free series of Academies dedicated to educating intermediaries about the second charge market. The academy sessions are formatted to help intermediaries identify some of the key points from the Mortgage Credit Directive (MCD) and the new regulatory regime for second charge mortgages.

We want to demonstrate that professional advisers should have the same level of confidence in second charge mortgages as other regulated lending products, and with a whole new market waiting to be explored, this is a perfect time to make sure you’re prepared for the MCD.

If you would like to find out more, please get in touch at secured@shawbrook.co.uk or call 0845 600 7861 and we will be be glad to talk to you about second charge mortgages

This is an advertorial from Shawbrook Bank.

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