Mortgage intermediaries who choose to offer advice on second charges, instead of referring the applicant to a secured loan master broker, will receive a procuration fee of 1.25%. The channel opens up on 5 May.
Before the Mortgage Credit Directive (MCD), implemented on 21 March, master brokers had a stranglehold on the distribution of second charge loans.
Under the Consumer Credit Act 1974 (CCA), second charge borrowers could not be charged for any fees up front which meant the intermediary or lender would have to foot the bill for the application assessment and valuation with no guarantee the loan would complete.
Master broker firms, prepared to take on this risk, sprung up to act as middle men between the introducing broker and lender, shelling out for loan expenses in advance then typically charging the customer a 10% completion fee.
The justification for setting the fee at this level was to compensate the master broker for losses incurred on other applications which failed to complete, leaving the firm out of pocket.
Following the MCD deadline, second charges are now treated the same as mortgages and are no longer governed by the rules of the CCA.
This allows lenders and brokers, choosing to give advice, to charge customers processing costs, which managing director Alan Cleary (pictured) said made the direct-to-lender channel a logical option.
A customer coming to Precise directly, will pay costs similar to a mortgage transaction, instead of being charged 10% of the loan by the master broker.
“We firmly believe this will improve the choices available to the mortgage intermediary market and to the end consumer,” said Cleary. “We are in talks with many major mortgage clubs and networks about bringing this opportunity to as many brokers and advisers as possible and anticipate making a number of announcements very soon.”
To coincide with the direct-to-broker launch Precise will add products to its Almost Prime second charge range with rates starting from 4.45% with a product fee of £300 or a fee-free option with rates from 4.75%.
Options to avoid early repayment charges will be available. Where customers have chosen a five-year fixed rate product, their affordability will be based on the initial pay rate.
Brokers can still choose to use one of Precise’s preferred master brokers; a 2% proc fee is paid to the master broker on completion of the loan, some of which is passed on to the introducer.