In March this year, the FCA brought second charge mortgages into alignment with first charge under the Mortgage Credit Directive. Despite this show of faith, some brokers are still reticent about using second charge mortgages, for a number of reasons.
First, brokers may be concerned about the lack of sourcing systems for second charge mortgages compared to those used for first charge loans. However, this is changing, with secured lending offers from platforms like Mortgage Brain, Twenty7Tech and soon Trigold.
Moreover, it is knowledge of lenders that enables brokers to make the right decisions when using sourcing technology. Brokers may be concerned about interpreting information given to them by the programmes, when they do not have intimate understanding of second charge lenders.
This lack of relationships with lenders can seem a barrier but is not insurmountable. There are many specialist master brokers who already have these relationships and experience and can partner with brokers whose customers could benefit from second charge mortgages. Master brokers are used to requesting references and instructing valuations; the partnership would benefit both parties.
The past reputation of the market may also deter them. They may see second charge mortgages as a product of last resort rather than a mainstream funding option. There are now products with rates from 4.05%, LTVs of up to 95%, fees of around 4% and the products themselves are available in a variety of forms: fixed, variable, tracker or discounted. Equally, second charge mortgage products are increasingly suited to being a short-term solution – with two, three and five-year fixed rate second charge mortgages with no ERC.
Lenders should do more to help brokers understand and spot the opportunity for second charge mortgages. Ultimately, both lenders and brokers want the best outcome for customers and there are many occasions where a second charge mortgage can provide this. Where there is an education gap, lenders should lay out clearly the instances when a second charge mortgage might be an alternative financial solution to helping a customer. Where brokers are concerned by the idea of setting up relationships with new lenders, lenders can direct them to a specialist master broker who will help them source the funding they need.