According to data obtained from a Freedom of Information (FOI) request sent to the Financial Conduct Authority (FCA), the number of employees offering second charge advice has remained beneath 12,000 since 2020.

The number has fallen each year, going from 11,701 in 2021 to 11,285 in 2022 and then 11,220 in 2023.

The total number of second charge advisers has been volatile since records began in 2016, which is when they became regulated by the FCA.

 

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Pandemic impacted second charge market with ‘significant force’

Aaron Noone, director of Master Finance Specialist Brokers, said that the pandemic had impacted the second charge market with “significant force” and a number of broker firms, especially in the business to consumer (B2C) space, had “scaled back their operations”.

He continued: “With high interest rates and a frosty sales market, joined with properties depreciating in value – second charges have become a tough market.

“Underwriting second charges and then packaging them also remains out of step from the mainstream mortgage market – we are still producing large files with loan redemption figures and recent credit card statements, which adds to the already heavy administrative element.”

Noone noted that higher rates meant average loan sizes were lower, which had a “knock-on effect” on written numbers and commission payments of staff or second charge advisers.

“As the FCA circles the specialist market, those who left, I feel, are unlikely to come back,” he warned.

Lucy Waters, managing director of Aria Finance, said that it was interesting that staff numbers began to decline around the start of the Covid-19 pandemic, noting that this is when remote working became “widespread”.

“For a niche product like second charge, effective staff training is crucial. I believe the best way for new employees to learn is by sitting with a trained expert who can answer questions and provide detailed guidance on a case-by-case basis.

“From my own experience recruiting at Aria Finance, enticing new hires into a fully office-based role can be challenging. However, while remote training is feasible, nothing beats the irreplaceable value of having an expert physically present to guide and support new advisers,” Waters said.

 

FCA regulation is key factor in second charge adviser numbers

Barney Drake, CEO of Y3S Group, said that there was clearly an increase when second charges became regulated by the FCA in 2016, showing the “importance of offering second charge mortgages as [a] standard offering where appropriate”.

He continued: “Positively, this increased year-after-year until the pandemic, reducing significantly. Being placed on furlough and or working from home gave everyone the taste of a different working environment, which many people favoured and so they made some life choices, many of whom ceased advising on second mortgages.”

Drake said that trading was “very challenging” during the period with lenders “tightening their loan to value [LTV] and employment criteria significantly”, and one major player suspending all lending.

“Although not as challenging as the global financial crisis, there were similarities and the sum of all parts clearly resulted in [fewer] people operating in the market. This year has been very good so far, thanks to economic conditions, innovation and lender confidence, in turn providing great opportunity for those who have remained committed throughout,” he noted.

Jason Berry, group sales director at Crystal Specialist Finance, said it was “not a surprise” to see the number of advisers choosing to offer second charge mortgage advice fall since an eight-year peak in 2020.

He continued: “Although second charge loan solutions certainly have a place in the broker toolkit the 2024, results from our Mortgage Industry Mental Health Charter survey suggest a record number of those operating in our sector are close to burnout and many are either leaving the sector completely or alternatively changing the permissions for advice they offer.

“However, the move does offer opportunity for distributors like Crystal as brokers are still able to find solutions by using referral options. This process often means there is a simple introduction and the distributor then picks up the client contact and responsibility to advise a suitable solution.”

 

Second charge becoming more popular with specialist brokers and packagers

Guy Nyirenda, head of commercial and specialist lending at Altura Finance, said one main reason for the fall in second charge advisers was due to brokers specialising in one or two areas they are “either most comfortable with or [that] have the most lead-flow generation” in the past few years.

“This by consequence means that they pass on the leads in other areas that are not regular or profitable for them, so they [enter joint ventures] with specialist brokers in those areas or utilise a packager,” he noted.

Nyirenda said the tightening of rules around second charge advice and fees meant brokers who do not have a regular lead source may have moved away from the market due to the time it takes versus the income second charge advice produces.

He explained that second charge loans are smaller than regular loans but take a similar amount of time to arrange.

“We have seen an increase in packagers and companies that almost predominantly look to second charges as their core business. Their volume business has led to the ability to process these quickly and efficiently, along with the second charge lenders providing a large amount of resource[s] to look after these bulk introducers. It makes more sense for brokers to pass on this business when looking to assist their clients with speed and efficiency.

“A lot of these providers/packagers really value other brokers on a full B2B model and look to ensure no cross-selling or ‘cutting out’ the introducing broker, which provides a lot of confidence when brokers introduce clients to them,” Nyirenda said.

He noted that he expected to see a rise in second charge lending but through specialist brokers and packagers, so while adviser numbers in that area would rise, overall numbers would stay stable.

 

Adviser numbers will start to grow due to demand

Matt Tristram, co-founder of Loans Warehouse, said that the second charge market had started to recover in the last quarter of 2023 and had got busier this year, adding that lenders had been introducing a lot of changes that had streamlined the second charge process.

He said that while there may not be a dramatic rise in adviser numbers, as the more streamlined second charge process meant fewer people may be needed, that there would be an “increase”.

Tristram pointed to the entrance of Interbridge earlier this year and a lender due to enter the market later this year, along with lender improvements, which would bolster appetite and broker recruitment.

This would bring the number of prime second charge lenders to around six, which has not been seen for a “long time”, according to Tristram.

“The outlook is really good, the new lenders coming into the market are motivating the existing lenders. There are consumers in the market who will be coming off lower fixed rates and may want to borrow more before they remortgage, they will want to raise money,” Tristram noted.

He noted that the need to have a CeMAP did make it more challenging to recruit for second charges specifically, explaining that the qualification contains only a small amount on secured loans.

However, he said that with the right support like setting aside time for people to complete the CeMAP and sitting down with them afterwards if they fail to help build confidence.

Tristram added that there was a misconception that mortgage brokers didn’t understand second charge mortgages, adding that brokers he had visited were “more open to second charge than I have ever seen”, but they needed a “constant reminder” of the opportunities through education and awareness.