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The danger of settling for the second best ‘deal’ – Magellan

by: Simon Read, managing director of lending, Magellan Homeloans
  • 01/08/2016
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The danger of settling for the second best ‘deal’ – Magellan
The process of cascading can ensure brokers find the best deal for their client, first time around, explains Magellan's Simon Read.

The mortgage market is awash with great deals at the moment and there are some eye-watering headline rates on offer, across all categories of products.

However, I’m sure most advisers have experienced the frustration of applying for one of these show-stopping deals on behalf of a client, only to be told the application doesn’t meet criteria and to have an alternative product offered instead. This is particularly challenging when the client has been given expectations of a cheaper rate.

There’s nothing wrong with the process known as ‘cascading’. In the specialist mortgage sector this predominantly happens at decision in principle stage and occurs for all sorts of valid reasons, with credit profile (and more recently credit score) being the most prevalent. However, ‘cascading’ in this way has been happening for many years and having invested a fair amount of time up to this point it’s helpful for intermediaries to know what a lender is and isn’t willing to offer.

That doesn’t mean an adviser has to recommend the substitute product to their client. If a deal is cascaded, the intermediary should, armed with the additional information gained from the cascade, update the original research to ensure that there isn’t another lender who can offer a better product.

This has been supported by the move by almost all lenders to soft footprint credit searches in that trying another lender doesn’t detrimentally affect the borrower’s chances of being accepted like the old hard footprint systems used to. Sometimes clients will choose speed as a reason to continue with the cascaded product, after all a large portion of the hard work is already complete. However, a difference in rate of only 0.25% on a 25-year repayment mortgage of £165,000 equates to £25 a month in savings. It doesn’t sound a lot but that saving could be used to better protect that client.

Should the process of ‘cascading’ be banned? Not at all. It makes good sense for an intermediary to know the best products the lender will offer the client.

However, ‘second best’ may be just that – there could be another first-choice deal available from other lenders.

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