Regulation by the Financial Services Authority (FSA) could lead to a massive dip in remortgaging, as a number of mortgage brokers will be forced to place deals with second charge mortgage lenders.
During the latest Mortgage Solutions Power Hour, it was mooted that a high exodus of mortgage brokers from the market, due to statutory regulation in 2004, could see advisers continuing to operate in the unregulated buy-to-let and second charge markets.
John Malone, national mortgage manager of Premier Mortgage Services at Scottish Amicable, said: ‘Currently, second mortgages are outside the FSA’s remit which means we could be creating a massive new industry for intermediaries who are not totally qualified to get into the second mortgage market.
‘So, if there is going to be a thriving second mortgage market it could actually reduce the amount of remortgaging that goes on. If the consumer goes to a second mortgage-type broker and is happy to keep the mortgage with their initial lender, the broker can then punt the second mortgage to a second mortgage provider and the fees they will get will be significantly higher than if they had remortgaged the original deal.’
The panel agreed this could result in a situation where lenders would allow the second mortgage to thrive on the basis that they will retain their original loan and the level of remortgaging away from lenders could drop. Steve Sandiford, head of product strategy at Birmingham Midshires, said: ‘It is an interesting commercial proposition and lenders might benefit from that but it is a question of how closely lenders want to be associated with something that is not going to be regulated.’
However, Bob Perks, business development director at Britannic Money, said a number of lenders were already thinking about getting involved in second charge mortgages. ‘From speaking to colleagues in the industry, I am aware of at least three or four lenders who are looking to get involved in the second charge mortgage sector, because of the higher margin business,’ said Perks.
Sally Laker, managing director of mortgage network, Mortgage Intelligence, urged caution: ‘From an intermediary point of view we have got to make sure the consumer gets the best deal so they get more referrals. But they want to be earning a good deal out of it at the same time. I think there needs to be some reshaping so there is an offering that, if they want to, allows the broker to benefit from keeping the client with the existing lender.’
Commenting on the possible ramifications of the exclusion, a spokesperson for the FSA, said: ‘The Treasury set the scope for the FSA’s regulation, which did not include second charge mortgages. Unfortunately, the FSA cannot comment more as it is still in the initial throws of the consultation.’