Promoting second charge for debt consolidation leaves industry ‘open to accusations’ – analysis

Martin Stewart (pictured), founder of London Money Loans says: “I think you have to be careful about being seen to promote a second charge mortgage as a way to help with debt consolidation. It is fine to make a fellow professional aware of the product’s potential, but if I were a broker, packager or lender actively promoting this direct to the consumer I would be wary of an ambulance chaser knocking on my door at some point in the future.

“The UK is already heavily indebted and the ease at which people can take on credit is worrying. There needs to be an attitude change first and then a solution presented as part of a wider financial review.

“If a second charge mortgage is the most suitable outcome for the client all well and good. If however people are offering a solution before they find the problem then that is leaving them and the industry open to all sorts of accusations,” he added.

The debt management industry has come under significant scrutiny of late with the Financial Conduct Authority raising concerns about practice in the industry and consulting on plans to further its regulation of the sector.

Merits discussion

However, opinion on whether offering seconds for debt consolidation was a good thing was split across the specialist lending industry.

Paul McGerrigan, chief executive officer at Loan.co.uk says the topic “definitely merits discussion”.

“Second mortgages are one product available to consumers as a vehicle to raise money along with unsecured loans, remortgages, further advances etc,” he says. “If a customer has accrued a level of debt that they have no plans or actions in place to reduce then I think this is unhealthy and any activity to address and reduce this should be at least considered.

Not primary objective

Steve Walker, managing director at Promise Specialist Lending, says while debt consolidation is a regular element of the firm’s second charge loans it is not necessarily the primary objective.

“It is vital that the advice around any debt consolidation is appropriate and this being the case I see nothing wrong with promoting second charge loans for debt consolidation as part of a balanced promotion,” he says. “Clearly the specific targeting of vulnerable borrowers with debt problems combined with a poor advice process will lead to customer detriment and this has no place in our industry.”