Second charge product fees predicted to fall six months post-MCD

Intermediaries and lenders attending the Mortgage Solutions event in Brooklands last week agreed that fees would fall as a result of the MCD.

One master broker said it would take six months before the market saw any change but added the sector would not see the same movement on rate. Delegates said that they did not think product rates could drop to a lower level than they currently were, but said discounted products were likely to emerge over the next two years which would be priced around the 2% mark.

In a survey of TMA directly authorised mortgage brokers conducted last year, which sought to gauge mortgage brokers’ opinions of the second charge sector, 27% said secured loans were too expensive.

Respondents said expensive fees and the overall cost of second charge loans had prevented them from writing any or more of this business.

Alan Cleary, managing director of Precise Mortgages, said he expected secured loan product fees to fall after the Mortgage Credit Directive had bedded in.

“Seconds are going to look a lot like firsts after 21 March so it doesn’t take much of a leap to predict that fees will come down. The day of the 10% broker fee is numbered.”

David Carrington, sales and marketing director, Personal Touch Financial Services (PTFS), said he did not expect second charge loans to account for a significant volume of his advisers’ business unless rates come down to high street mortgage levels, a change which Cleary said we are unlikely to see.

Cleary added: “Secured loan rates are not likely to drop to the levels of mainstream residential mortgages because the risk is greater to the second charge lender on loss severity. Second charge lenders price for a higher risk than in the event of the first charge lender repossessing the borrower’s property, the second charge lender may not get their money back.”