Mortgage brokers must leap ‘mental hurdle’ of first secured loan deal

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  • 05/05/2016
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Mortgage brokers must leap ‘mental hurdle’ of first secured loan deal
Mortgage brokers who still see second charges as a risky market will have a change of heart if they leap the ‘mental hurdle’ of advising on their first deal, says Martin Stewart, director of London Money.

Intermediaries who attended the Financial Conduct Authority’s (FCA) Live & Local roadshows on the mortgage advice process fed back to the regulator that second charges posed the biggest risk to the market.

Having only moved to the same level of regulation which applies to mortgage lending from 21 March when the Mortgage Credit Directive took effect, Stewart said seconds were still in ‘no man’s land’.

“They’ve shifted from guidance under the Office of Fair Trading to full regulation under the FCA, but people still think they are a bit murky. If you ask the same question in a year’s time the perception will be very different.”

Stewart, who launched second charge advice firm, London Money Loans, in April, said it was natural to feel unsure about entering a market for the first time.

“Once you’ve got over the mental hurdle of advising on your first second charge deal and see the end result, a solution to the client’s problem, you can see the benefit of being involved in this market,” he said.

“This time last year I hadn’t written one second charge, and when I did, it was like arranging my first mortgage 15 years ago, you learn as you go along. Since then I’ve personally arranged around £800,000 of secured loan finance.”

Legal and General Mortgage Club director Jeremy Duncombe, said a ‘fear of the unknown’ was holding mortgage intermediaries back from this market.

“I think there is still a confusion over whether mortgage brokers have to write the business themselves or whether then can refer it,” he said.

“Our advice is to align yourselves with a second charge partner if you are unsure about how much you want to get involved in the sector.”

Failing to understand the product, a lack of confidence and uncertainty about which firm to team up with were the most common reasons brokers still saw seconds as a threat, said Stewart.

He added: “We’ve just completed our first round of master classes for introducing mortgage brokers to educate them in these areas to encourage them to embrace this market.”

There are 7 Comment(s)

7 responses to “Mortgage brokers must leap ‘mental hurdle’ of first secured loan deal”

  1. very deceptive says:

    With secured loan fees remaining at a colossal 10% to 15% of the loan I seldom have clients in such dire straits that this is the best way forward. I don’t appreciate making high amounts of commission in this way, unless there is no better alternative for the client. Even then, I ask for the fees/commissions to be reduced. Unfortunately, a number of the main loan brokers will not allow a reduction.
    At least, the restriction of the early repayment charge a short while was a great improvement.

  2. Andy Wilson says:

    Agree totally with the fees; I have referred two cases to a Master Broker and the fees in both cases were £6,000. No, part of the cost is the big fat commission paid to brokers and the big fat profit taken by the Master Broker. The broker sought to justify these by saying there were no up front fees for the client and not all cases go ahead. All that seems to have really happened is that the old high ERC’s have become a front loaded charge with another name instead, whether or not the loan runs full term.

    They still seem to be a rip off to me for clients who are absolutely stuck. I am yet to be convinced the market is any better than it was in the dire days of the 80’s and 90’s.

  3. Dougie says:

    Old school master brokers like Norton Finance and Promise Solutions do charge 10% to 12% in fees but since March many packagers are reducing fees to reasonable levels. I went to a TMA mortgage event a few months ago and spoke to V loans who have reduced fees and now I’m told charge 5-6% and Positive lending have a fixed £995 or even lower fees for BTL second charges. For brokers not looking to make a killing from clients pockets you can search for different packager options. Brokers need to educate themselves to what’s been offered from a range of master brokers and packagers and pick 2-3 to work with to build up knowledge of this, to some new market. We have agencies with around 12 packagers ranging from Commercial, Bridging, Second charges both secured and unsecured and direct to newer lenders like Precise.
    Brokers need to wise up and look for new packager relationships if the old ones are still charging high fees. We now all have new opportunities that have opened up in the last couple of months if we chose to use them.

    • very deceptive says:

      I have made five new relationships in the last 12 months but all have a standard fee of at least 10%. Three were recommended by my network.
      I will approach the better ones you mentioned, plus investigate the latest news from L&G with a direct-to-lender solution.

  4. Paul Mcgonigle says:

    Thank you Dougie for sharing Positive Lending’s views for packager fees. Yes there were and still are packagers who charge far too much for their service, prior to MCD our average fee was 4% with the risk of abortive costs – we were never playing in that arena and we still managed to make a profit! Packagers need to wake up – stop charging ridiculous fees for their services and selling a proposition based on commission rather than customer centric values coupled with a sensible proposition for clients and brokers

  5. The Cynical Broker says:

    Very Deceptive, presumably you arrange to pay to the borrower the amount commission the master broker won’t reduce ?

    • very deceptive says:

      I’d be happy to reduce my commission, however if this isn’t met by the Master Broker it doesn’t go far enough. I would need to refund my entire commission just to make it nearly reasonable.
      I am now in discussion with Positive Lending…

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