The logical reasoning for the expected growth in second charge loans was that since the MCD applied equal weight to first and second charge mortgages, brokers would consider and adopt the latter as part of their holistic advice offering.
However, over a year and half later, we are only now starting to see the momentum predicted. In the first of two articles looking at why second charge loans were slow in getting off the ground, we will focus on sourcing systems and broker awareness.
The initial effect of the MCD was the opposite of what was originally expected; second charge loans dropped by 41% in April 2016 and growth remained largely flat throughout the year, with H2 2016 showing an annual drop from 24% in June to 4% in December.
It wasn’t until the beginning of this year that the market got back on its feet and activity increased, reaching a nine-year high in May.
Part of last year’s slowdown was caused by the fact that sourcing systems were not able to provide all the information that brokers needed to make an informed choice, which ultimately inhibited their ability to provide the best and most suitable advice to their clients.
Yet we know technology never stands still.
Developers soon recognised the importance of offering a comprehensive sourcing solution for their users, and Twenty7Tec was the first major tech provider to launch a tool that compared the cost of a remortgage against a second charge loan, followed by Iress and then Mortgage Brain.
It’s too bad that this software wasn’t available when the MCD was first introduced, but technology providers have taken a major step forward since then.
As a result, brokers now have the ability to research the market properly and thus have real confidence in the advice they give to customers.
Today’s sourcing systems can now provide brokers with all the information they need to get to grips with second charge loans, yet there are still many who feel this is unfamiliar territory.
In reality, this burgeoning market is only an extension of first charge loans. Although rates and lenders may be different, the same advice processes and standards apply.
As such, lenders and distributors simply need to educate brokers in order to help them understand the benefits that these loans can offer.
We are certainly getting there in making second charge loans mainstream, but we still have a way to go. For a start, it’s not just brokers who need greater awareness.
In my second article on this topic, I will look at the role that master brokers play, and also consider the benefits that second charge loans can provide for consumers.