The current processes are poles apart and we have one last chance to get this right. Back in the early noughties, when this subject was first raised, the industry was asked to respond to the consultation papers that eventually formed MCOB, unbelievably only two people responded: one of them was Peter Presland, the then managing director of Pink Home Loans.
The response was that all charges on a residential property should be regulated in the same way, under the rules or principles of the same body whether it be a first charge, second charge, bridge or buy-to-let.
As we all know, this didn’t happen and by having different regulators the markets have become polarised. I know that many brokers operating in the second charge market would not dream of advising on a further advance or remortgage and many first charge brokers fight shy of dealing in second charges.
Even the processes are hugely different and it seems to me that any consolidation of loan regulation has to follow the pattern of first charges. The second charge market is dominated by master brokers, approximately the equivalent of packagers, however in seconds almost no lender allows brokers to deal with them directly; just imagine if the regulation of first charge mortgages went this way and every mortgage had to be submitted through packagers.
The differences do not stop there; on arranging a second charge the master broker has to pay for all upfront costs including the valuation while successful applicants pay either through completion fees or interest charged for the aborted cases.
If it does happen that all loans are regulated and need to be carried out under the same due process I suspect networks will offer AR status to their members to enable them to carry on advising on secured loans, bridging and buy-to-let, otherwise the intermediary will have to seek ‘multi-principal status’ or consider becoming directly authorised, however I do not think they will be allowed to do both without setting up a separate business.
I expect to see a harmonisation of the sales process which I hope will mirror the processes for first charge, and I would not be surprised to see first charge lenders entering the second charge market on a direct to lender process.
Unfortunately the EU directive, will not be implemented until early in 2016 and the FCA is right not to make changes without incorporating this. Nevertheless it does leave the market in somewhat of a hiatus until then.
David Copland is director of mortgage services at LSL
