Second charge lenders will have to subject their borrowers to the same robust income and expenditure assessments mortgage lenders have been using since the Mortgage Market Review was introduced in April 2014.
Post-MCD this year, mortgage lenders retain the right to decline consent to second-charge lenders preventing a borrower from using this form of finance.
Borrowers will be told, during their consultations with an adviser, that remortgaging and a secured loan are both options they may want to consider. With mortgage lenders yielding the power to say no – does the borrower really have freedom of choice?
This week our panel of experts considers whether the mortgage lender’s right to decline consent will prevent a genuine choice between first and second charge lenders.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaires, talks about the lender’s right to decline and how this should not cause problems if handled responsibly.
Steve Walker, managing director of Promise Solutions, discusses how borrowers are disadvantaged by specialist lenders’ reluctance to grant consent.
Bradley Moore, Brightstar director of second charge loans, explains how the adviser can set expectations during the initial mortgage meeting about whether further lending is a possibility.
There are sometimes legitimate reasons for a lender to refuse permission to a second charge lender. This can be where the lender has advanced a flexible loan which allows the borrower to take further funds or perhaps where the lender has provided forbearance or support which does not appear on a credit file.
In most other circumstance there should be little reason why permission should be refused. However, to give the customer the right to agree consent breaches a fundamental right of a mortgagee. Should such a right be granted, then I could only see a flurry of new conditions appearing in loan terms and an increase on interest rates to reflect an increase in potential risk.
The rights and obligations between first mortgagees and other parties was debated by industry groups prior to consultation on how the Financial Conduct Authority would draft the rules in MCOB. It was agreed that the current approach delivered appropriate solutions for most consumers. It might not be perfect but the final decision should rest with a responsible lender.
The second charge industry has lived with lenders withholding consent for years. Some mainstream lenders rightly withhold consent if they don’t think borrowers can afford the repayments but this can be overturned if we can demonstrate affordability and put sufficient pressure on the lender to reconsider. Others decline consent where there is an ‘open mortgage’.
Often consumers are on a very low rate and the only way they can get consent is by changing the mortgage product thus losing their current deal and often incurring extra costs. We can only speculate if this is a deliberate play by lenders to move clients to a higher rate but with TCF [Treating Customers Fairly] in mind surely there is a better way.
Borrowers do seem to be more disadvantaged by specialist lenders, especially those which are no longer active and are simply managing a back book. Some lenders decline consent as a matter of course if the loan purpose is consolidation which can put consumers under more pressure to meet their monthly obligations – including the first mortgage. This ‘one size fits all’ approach doesn’t treat customers fairly. The other problem area is where borrowers have a buy-to-let first mortgage – again many lenders decline consent as policy.
It’s unlikely that the right to decline consent would be totally taken away from first charge lenders. However, if rules changed requiring them to properly justify the reason on an individual case basis, rather than policy, and prevented them financially disadvantage borrowers, the outcomes for consumers would be much fairer.
I think that it is only right that a lender reserves the right to decline a second charge loan, however, we should expect them to assess the request in full and take a measured approach, simply declining across the board isn’t right as every client’s scenario is different.
That said, if the lender has stipulated at the outset within their terms and conditions that they do not allow further borrowing via a second charge then they have satisfied their obligation to the borrower. That just highlights the need for advisers to not only discuss customers’ requirements at the time of borrowing but also their potential needs moving forward.
Thankfully there are much fewer lenders that decline consent than there are that give it and those that do decline are aligned to buy-to-let rather than residential and often decline simply because they no longer lend and the lender is looking to have its debt repaid.
The majority of lenders will consent although obtaining that consent can vary from simply requesting it to completing a full fact-find. In the main it is a relatively straightforward process that doesn’t hinder the application.
Ultimately the lender wants to protect its contractual monthly payment, which is perfectly reasonable. Suffice to say any restriction can be frustrating to the customer but if the decisions are being made to protect not only the lender’s interest but also the borrowers then I don’t think they can do any more than that.