Precise Mortgages unveiled its secured loan range and December saw the emergence of new kids on the broker block Loan.co.uk. The latest figures suggested that the market had been cooling off towards the end of the year but the industry does not expect this to be a long-term trend with bold predictions that lending could break the £1bn barrier in the next three years.
In March 2016, the seconds market will be brought into line with residential mainstream mortgages under rules brought about by the EU Mortgage Credit Directive (MCD) which the industry sees as a positive step in improving the credibility of the sector.
Second charge lenders and brokers will become subject to Mortgage Conduct of Business (MCOB) rules so practices such as income and outgoings assessments and bank statement assessments are likely to become commonplace. The sector will need to take its advice qualifications and the processes of arranging a first or second charge will become similar. The final picture is not known but it is thought that to be truly whole-of-market brokers will need to be able to recommend a second charge if it is the most suitable option for the client.
So does that mean there will be an end to the difference between first and second charge brokers and one broker will advise on both?
This week we have asked our experts to consider whether mortgage broker firms should start preparing now for the March 2016 deadline by setting up their own secured loan broker team within their existing business. Or, is it better to create a partnership with an established second charge company?
Nicola Georgiou, managing director, The Lending Wizard, considers the power of existing relationships versus starting from scratch.
Amanda Waddington, head of relationship management at TenetLime, looks at the merits of splitting the process in half keeping the advice in house but outsourcing the packaging.
Mark Graves, head of network at Pink, thinks the mortgage industry would do well to be better educated on secured loan products.
Nicola Georgiou is managing director, The Lending Wizard
The changes to the second charge market due to be introduced in 2016 under the Mortgage Credit Directive (MCD) will give even greater credibility to second charge loan products. Increased scrutiny from regulators will allow for higher-quality secured loan products, making them more attractive for consumers and providing an incentive for mortgage brokers to consider second charges alongside first charge products when identifying the best possible solution for their clients. To meet this predicted increase in demand for secured loans, many mortgage brokers may look to set up their own second charge loan broking arm, but this does involve a significant investment of time and resources.
The alternative is to develop a strong partnership with an existing second charge broker. These specialist brokers have already progressed leaps and bounds towards compliance with the MCD rules, not only in terms of their processes, but also by building close relationships with lenders and providing extensive training for their staff.
Furthermore, by teaming up with the existing secured loan specialists, mortgage brokers gain access to a depth of experience and strong existing relationships, allowing them to source the best possible products for their clients’ individual circumstances, however complex the case might be. It’s a preferable option to starting from scratch, as in many instances second charge loans lie outside the expertise of brokers – a Lending Wizard survey conducted at the most recent Financial Services Expo in London revealed that 65% of brokers hadn’t used a second charge product at all in the six months prior. In an industry where relationships are vital and based on a firm trust in the quality of the service provided, experience plays a big part.
Amanda Waddington is head of relationship management at Tenet Lime
Generally speaking, I would say ‘no’. Packaging a secured loan is a specialist area and very different to standard mortgage lending.
There are two key elements to secured lending becoming regulated, which affect the advice process. When making a normal mortgage recommendation, brokers would have to make clients aware that a second charge may be available. They would also have to align the secured loan sales process with their existing mortgage procedures.
Nevertheless, it is very likely that more brokers will wish to start advising on secured loans.
On the packaging front, I would expect more firms with the relevant expertise to expand and enhance the services they currently offer, as more mainstream lenders offer secured loans.
Smaller firms however, may find this prohibitively difficult. If not already in this market, they will face numerous challenges in setting-up a specialist arm.
Agreements will be needed with lenders, who may continue to be very selective. A raft of new quality measures will need to be implemented. Volumes are likely to be above what many firms will be able to sustain. And fees are a consideration.
Accordingly, I envisage a lot of smaller firms bringing in specialists, or maybe re-training to be able to perform the advice process (but not the packaging).
Large national IFAs are much better suited, as most will have the right levels of distribution already in place and be able to replicate the terms and split the income.
Overall then, I would not recommend brokers packaging, although up-skilling to advise would be more than feasible and submitting direct where lenders will allow.
There will always be a place for specialists with expertise in the packaging arena that have good links with the relevant providers, a proven track record and can provide additional services to enhance the advice process.
Mark Graves is head of network at Pink
I believe the regulation coming in from Europe regarding the secured loan market is long overdue, and most people in the industry will embrace the change.
However, it is going to be a learning curve for all concerned to understand when a secured loan is going to be the right option for the client circumstances.
I foresee secured lending as being one of the largest growth areas over the next couple of years and it will benefit those providers with the most professional sales process.
It will be a major change for many mortgage brokers who are currently unaware of the benefits and product details of second charge products and who up to this point have given secured loans a wide berth.
However, as confidence grows and relationships are built with these established firms then passing a client to a third party for advice will become second nature for mortgage brokers.
I am not embarrassed to admit that further education for all of us in the secured lending arena is no bad thing.
