FCA has driven up standards in second charge lending – Specialist Solutions Marketwatch

  • 21/08/2018
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FCA has driven up standards in second charge lending – Specialist Solutions Marketwatch
It is a year since the Financial Conduct Authority (FCA) announced its review of the second charge sector, which sent the waves through the market.


Specialist Lending Solutions is asking its panel what has changed and how will the market evolve as a result.


Buster Tolfree, commercial director – mortgages at United Trust Bank believes the changes have seen lenders evaluate their offerings and work closer with master brokers.

Tim Wheeldon, COO of Fluent for Advisers, says the review has prompted better lending practices such as evidence-based affordability across the board.

Matthew Arena, managing director of Brilliant Solutions argues networks need to invest more time in training brokers and trusting them to use second charges.



Buster TolfreeBuster Tolfree, commercial director – mortgages at United Trust Bank


The FCA review prompted lenders to take a close look at their underwriting and processes. Those who found themselves coming up short have had to enhance their systems and controls and subsequently a number of lenders have stepped back from the sector or substantially reduced their volumes.

This has enabled lenders like UTB to consolidate their position in the marketplace.

Lenders also now expect master brokers and packagers to do more to ensure that customers are ‘suitable’ before reaching proposal stage and this has strengthened the relationships and partnerships between lenders and packagers.

Also, with regulation putting first and second charge mortgages on a similar footing, it has paved the way for lenders to develop their direct offering, working with networks and direct advisers more so now than ever before.

Although there have been plenty of positives in the last two years, one disappointment is that we haven’t seen the growth of the second charge market we would have liked and expected.

Finance and Leasing Association (FLA) figures show lending of around £85m-90m per month and although that has climbed to over £100m on occasion, the market size remains stubbornly static.

The sector still carries some historic negative baggage, however in the last decade it has transformed into a professional and transparent industry.

We must work together to promote the fact that lenders now offer an excellent range of products and that a vast majority of lenders and brokers put great customer outcomes at the centre of their business.



Tim-Wheeldon-FluentTim Wheeldon, COO at Fluent for Advisers


Given the relatively short length of time, in comparison to its first charge cousin, the second charge market has been regulated by the FCA, the relationship between regulator and lenders is working well.

Examples include the smooth transition from the previous regulatory regime and the way in which this year’s review requests have been implemented with little fuss.

Crucially, the FCA has been broadly positive in its assessment of the sector and its progress.

As a distributor, we have seen more in-depth evidence-based affordability and proof of income/expenditure focussed criteria across the board.

However, the FLA figures have remained very consistent on levels of business written over the months since changes were implemented.

Our own volumes having risen by over 40% in that period.

More work, time and evidence has gone into the writing of loans, but on the whole the impact has been of a positive nature and most changes have been in the documentation of the loans, rather than the actual lending decisions themselves.

Looking ahead, the future is bright.

Under the FCA umbrella, the second charge sector now has the necessary legitimacy to develop and grow as a fully-fledged member of the regulated lending sector.



Matthew ArenaMatthew Arena, managing director of Brilliant Solutions


The one thing that needs to change is a lot of networks’ approach to second charge mortgages because they control a huge amount of distribution

Networks need to embrace the second charge market, educate and enable their brokers to be able to get more involved in it.

Right now I think they are holding the market back because they are choosing to partner with firms that are charging hefty fees and most get a kick-back from those hefty fees.

Only once networks take second charge seriously will the market really grow.

However, we are seeing a lot of brokers engaging with seconds from the directly authorised (DA) space where they haven’t before.

It’s not the sea-change many had hoped for or expected but we are seeing a positive increase in business and so we’re expanding that part of our service operations.

We are also coming to that stage where those advising on seconds will need to be qualified and that will help the market.

A lot of second charge business came from the call centre model – the regulator is tackling that and now the quality of people is going up.

Do people get a second charge where they should be getting remortgages or other forms of finance? Probably.

But also I don’t think enough people are getting second charges rather than remortgaging because too many advisers and too many networks aren’t taking it seriously.

It’s still a small number but I want people to have the right products.



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