Second charges – will you pass the test? Promise Specialist Finance

We don’t know when this will happen but there is an expectation it will start in the first half of the year. This will be the first big test for mortgage brokers and second charge specialists.

Second charge brokers have faced enormous change, but the whole industry, lenders and brokers alike, came together to consider the impacts and plan a totally new way of working. Consequently everyone knew what was required so, in most cases, any gaps are likely to be in the detailed interpretation and implementation rather than the major changes regulations required.

For mortgage brokers, however, the inclusion of second charges in the mortgage regime was more of an evolution than a revolution and 12 months on you have to wonder if it by-passed some of the mortgage intermediary sector altogether. Considering second charges for any capital raising clients should be second nature. Those wishing to call themselves ‘independent’ should now be adept at advising and recommending secured loans. Others may prefer a referral process using a loan master broker. Either way the process should contain consistent disclosure and delivery of the services being offered, all fully documented to evidence what has been done and why.

We know that, for many consumers, a secured loan will be a better solution than a remortgage where it is mathematically preferable to retain the existing mortgage. With rates starting from as low as 3.83% and many of your clients no doubt tied into a very good mortgage rate at present – and fixed rate mortgages set to rise in the not too distant future – keeping hold of that current mortgage rate makes sense. Second charge loans will allow your client to do just that.

We also know that a second charge can often be a suitable alternative where borrowers don’t meet standard first charge criteria. So it follows that, if brokers are considering second charges as consistently as one might expect, the industry volumes would soar.

Yet industry figures suggest brokers, in the main, are still not on board. Independent studies state second charge lending is falling and that over three quarters of consumers still don’t know what a second charge is.

Consider if your business needs to do more to get a clean bill of health in any forthcoming regulatory reviews. Seconds can make sense for your clients and the workload shouldn’t be an issue as referring a client to a master broker is easy. Advising and working with a packager is straightforward and the advice/suitability process does not differ greatly from the first mortgage process. And if you still don’t feel you understand seconds enough there are plenty of master brokers to help you.

I suppose my point regarding second charge loans is this – if you don’t consistently disclose what you do, do what you disclose, and treat your clients fairly and consistently, be prepared to explain why not. The old days of offering a secured loan on an inconsistent or ad hoc basis are gone.