While several lenders already offer this to their existing customer base, they don’t market it as a distinct product.
I’m an advocate of taking a pragmatic approach to borrowers with a good track record and credit history. I had very much hoped that someone would take the braver step of offering this as a product, effectively allowing customers to “port” their negative equity.
Nonetheless, the news wires published some negative comment about LBG’s move, focusing on two main themes.
Firstly, that this was risky lending that went against the treating customers fairly principle and, secondly, that it would only be available through the direct channel.
I doubt we need to be concerned about the risk element, as I’m sure the ‘second steppers’ scheme will only be suitable for those with a pristine credit and payment history. Most importantly, the monthly payments will be affordable and probably stress tested too.
On the second criticism, I have more sympathy.
This product will require careful analysis of the second stepper’s financial situation. It is surely crying out for quality, independent advice to ensure the customers understand the loan implications and the available alternatives, such as a mortgage plus a secured loan.
Even if LBG is uncomfortable with offering this product to all of its intermediary relationships, it could perhaps offer it on a restricted basis to a trusted distributor.
For complex products such as this, it would not be such a bad thing should the European Commission decide to make advice compulsory, as it is currently considering – particularly for higher risk customers.
The other point to note – articulated rather more crudely by one commentator who observed that “this product will be about as popular as Andy Gray at a WI meeting” – is that the lender requires the borrower to ‘share’ the negative equity element by providing an additional deposit.
Without wishing to generalise, I suspect that many of those second steppers desperate to move may find it difficult to produce a lump sum.
Often, they are young and expanding families who have outgrown their current property and may have a reduced income due to maternity leave or childcare provision. Coupled with the sheer cost of bringing up children, spare cash may be scarce.
I also have reservations about the direct-only route. Full understanding of this product and its longer-term implications, together with some alternative solutions, can surely only be derived from skilled and independent advice.
Hats off to LBG for trying, but I wonder how popular this product will be?
Alison Beech, business relationship director at Spicerhaart
