Many brokers will know exactly what I’m on about, as 2008 exposed them very quickly, although the memories may have been blurred by the booming residential market of the past year or two.
In fairness, many brokers since those dark days have broadened their propositions considerably, offering a much more holistic service built on multiple revenue streams.
I genuinely believe this was the right thing to do and will serve them well in the future.
In most cases, the new channels brokers have stepped into are a perfect complement to the residential mortgage market.
Bridging is one example, commercial mortgages are another, but the one I wanted to focus on today is secured loans, or ‘second charges’.
Secured loans have grown hugely in popularity over the past two years, with new lenders entering the marketing, rates dropping and LTVs heading north (as high as 95% for employed applicants).
The prospect of jeopardising a fantastic mortgage rate through a remortgage has made them especially popular with homeowners and landlords alike.
But let’s get straight down into the nitty gritty. As a rule of thumb, secured loans pay commission of between 2% and 4% and usually take 2-3 weeks to process.
Loan amounts generally start from around £5,000 and go up to £150,000 (and well beyond that on prime properties with significant equity).
Loan terms tend to be from 5 to 30 years (with payment holidays, as on a term mortgage, often available) and rates – fixed or variable – can be as low as 5.5%, although will ultimately depend on the size of loan and the applicant’s credit profile.
Unlike mortgages, there are no up-front fees payable on secured loans. Most distributors of secured loans, us included, take care of the valuation and processing costs so clients have nothing to pay initially. Instead they are rolled into the monthly loan payments.
Another point worth mentioning is that the ERC on a second charge mortgage is usually just one month’s interest, which makes them a very flexible product.
All in all, I’m a real believe that secured loans should be at the top of all brokers’ lists as an extra revenue generator.
Danny Waters is CEO of Enterprise Finance