Borrowers who want a refinancing option must be told that, as well as the traditional remortgage route, a second charge loan may be suitable. Straightforward so far, or is it?
The second charge sector is a different environment to the one which many mortgage brokers are used to. Firms known as master brokers sit firmly in between the introducing adviser and the lender, extra processing steps need to be taken to obtain consent from the mortgage provider and lender risk appetites are varied and in some cases more flexible.
There’s no escaping the march of the second charge and mortgage firms, networks, clubs, directly authorised brokers and appointed representatives need to evolve either advice or business models to make way for the new regime.
This week, our panel of first charge specialists explain what changes they have made to get ready for second charge business.
Liz Syms, director of specialist mortgage network, Connect for Intermediaries, talks about her preparations to obtain the status of master broker to put her firm firmly in the second charge distribution chain for its members.
Simon Collins, product technical manager, John Charcol, explains how a recent business acquisition will now allow the intermediary firm to keep second charge business in-house.
Dominik Lipnicki, director of Your Mortgage Decisions, says the low volume of cases where a second charge loan is the preferred finance option has influenced his decision to outsource, for the time being at least.
Connect started to become involved with second charges when Castle Trust launched its buy-to-let equity second charge product. We found this was a very popular product with our clients and brokers, but occasionally we felt there was a need to consider a more traditional second charge offering.
Aware of the pending regulation changes, we stepped into this market by taking three master broker agencies with some of the key second charge providers in the market.
An agency is the agreement a firm enters into with a lender to transact and advise on that lender’s products. For some it is a simple agency contract, for others, such as Castle Trust and the other secured lenders we had to undergo training and accreditation first before being granted the agency.
The way we work with Castle Trust is very much aligned with a first charge mainstream lender, in that it controls the paperwork and valuation process. As a master broker with the other second charge providers, we were in control of the processing and valuation instructions.
These processing requirements are quite different from a mainstream application and include things like issuing credit agreements and completing credit and Land Registry checks. This is the main reason why many mortgage advisers choose instead to refer to a master broker which specialises in this market.
It is also one of the main reasons we chose to take on just three key agencies initially, so we could ensure we were very familiar with their requirements. I am adopting a ‘wait and see’ approach to consider the offerings that may be available from lenders post-MCD. Many lenders are considering offering a choice of agency to advisers. This would be either as a master broker who completes all the processing, or a simple agency where the adviser can work in a simpler and more familiar way as they would do with a first charge lender. It will be interesting see the offerings as this market develops.
For the past few years now we have already been treating second charge enquiries in the same vein as first charge ones. Our consultants follow the same advice process, by completing a fact find, and first discounting the viability of a further advance with their existing lender. Then we would compare the benefits of a full remortgage, against the value of a second charge loan. If we deemed a second charge the right option for the client, then we would refer them to an external company who would deal with the advice process. The company that we refer clients to is one that we’ve dealt with for many years and have excellent relationship with, which really negated any concerns regarding our ongoing relationship with the client.
While we’d had no complaints about the service referred clients received, with the acquisition of Simply Finance we will now be able to do these in-house. We don’t envisage the way in which we approach second charge loans to change, and will still expect consultants to follow the standard advice process to ensure that second charges are recommended only where most appropriate to the client’s needs.
The MCD and second charges are something that had been on our radar for some time and while it wasn’t necessarily the prime driver behind the acquisition of Simply Finance it has certainly been very beneficial.
Like most, I believe that the upcoming changes in regards to offering a second charge option at the same time as the mortgage are largely unnecessary for the UK market.
We have once again had a ‘one size fits all’ regulatory change which will do little more than add to the intermediary’s administrative burden. I fear that this will all too often end up as a box-ticking exercise and will not further protect the consumer or expand their choices.
Nonetheless the changes are here and we have decided to refer these to external secured loan brokers, as in our view, an actual need for a second charge application will be very rare.
Having looked at all of our remortgage cases for the last twelve months, unless a client needed to raise funds while having a prohibitively expensive tie-in on their mortgage, second charge lending would have been too expensive when compared with a remortgage or further advance.
I really do not see this changing going forward and consider second charge lending as a go-to solution when the case is not placeable for a remortgage.
Clearly we will monitor the situation and if our chosen mortgage sourcing software allows a reliable and instant comparison, we may well reconsider.