Starting March 21st, the Mortgage Credit Directive (MCD) will significantly change the regulation of second-charge loans, aligning them with the regulatory framework applied to first-charge mortgages. Individuals seeking refinancing will now learn about the conventional remortgage route and the viability of the second-charge loan. Delving into MarketWatch’s second charge reveals a distinctive landscape unfamiliar to many expert mortgage brokers.
Master brokers, acting as intermediaries between advisers and lenders, add another layer of complexity. Securing consent from mortgage providers requires extra processing steps. Lenders exhibit varying risk appetites, occasionally demonstrating increased flexibility. As the second charge gains prominence, mortgage entities must adapt their advice or business models.
Our panel of first-charge mortgage experts outlines the adjustments they’ve made to integrate second-charge business seamlessly. Liz Syms, director of Connect for Intermediaries, shares her efforts to attain master broker status. Her firm is positioned within the second-charge distribution chain for its members.
Simon Collins, product technical manager at John Charcol, discusses how a recent acquisition empowers their intermediary firm. This acquisition enables handling second-charge business internally. Dominik Lipnicki, director of Your Mortgage Decisions, acknowledges the low volume of second-charge loan cases.
He has decided to outsource temporarily due to this low volume. This underscores the dynamic mortgage landscape, prompting stakeholders to reassess and adapt their strategies. Regulatory shifts and emerging opportunities drive this need for strategic adaptation.
Second charge Marketwatch | Liz Syms CEO of Connect for Intermediaries
Our involvement with second charges began when Castle Trust introduced its buy-to-let equity second charge product. This product quickly gained popularity among our clients and brokers. However, we occasionally identified a need for a more traditional second-charge offering.
Anticipating regulatory changes, we partnered with three master broker agencies representing key second charge providers. These agencies involve agreements between firms and lenders to transact and advise on the lender’s products. Some agreements are straightforward contracts, while others, like Castle Trust’s, require training and accreditation.
Our collaboration with Castle Trust is similar to working with a first-charge mainstream lender. Castle Trust manages paperwork and valuations. As master brokers with other second-charge providers, we oversee processing and valuation instructions.
Unique processing requirements in this market include issuing credit agreements and conducting credit and Land Registry checks. These differ significantly from mainstream applications. This distinction prompts many mortgage advisers to opt for specialized master brokers like us.
We deliberately chose to engage with only three key agencies initially. This allowed us to familiarise ourselves with their specific requirements thoroughly. Adopting a ‘wait and see’ approach, we evaluate post-MCD offerings from lenders. Many lenders are contemplating providing advisers with a choice of agency. Options include a master broker handling all processing or a simpler agency allowing advisers to work more independently. Observing the market’s evolution, we look forward to the varied offerings that may emerge.
Second charge Marketwatch | Simon Collins Product Technical Manager | John Charcol
In recent years, our handling of second-charge inquiries has mirrored first-charge inquiries. Our consultants meticulously go through the advice process, conducting a comprehensive fact-find and initially assessing the feasibility of a further advance from the current lender. We then weigh the advantages of a full remortgage against the value a second-charge loan offers. If a second charge is deemed optimal for the client, we refer them to a trusted external company. We’ve maintained a strong and enduring relationship with this company over the years, alleviating concerns about client relationships.
Despite receiving no complaints about the external company’s service, the acquisition of Simply Finance allows us to handle these matters in-house. Our approach to second-charge loans will remain consistent, with consultants adhering to the standard advice process. This ensures that second charges are recommended only when most suitable for the client’s specific needs.
The Mortgage Credit Directive (MCD) and second charges had been on our radar for some time. However, they were not the primary motivation behind acquiring Simply Finance. Nevertheless, incorporating Simply Finance has proven highly advantageous in navigating these areas.
Second charge Marketwatch | Dominik Lipnicki Director of Your Mortgage Decisions
The upcoming changes in second-charge mortgage options appear unwarranted, mirroring the concerns of many industry professionals.
Once more, we face regulatory shifts adopting a ‘one size fits all’ approach, complicating intermediaries’ responsibilities. Consequently, this change risks becoming another checkbox exercise with little benefit for consumers or their choices.
Although these adjustments aim to protect consumers, they seem unlikely to enhance value or expand borrowing options meaningfully. This raises concerns about the practicality of these regulations for intermediaries and borrowers.
We have chosen to delegate these changes to specialised secured loan brokers for implementation. Their expertise ensures compliance while reducing the strain on internal resources.
In practice, genuine demand for second-charge applications remains rare, based on our observations of the past year. Reviewing remortgage cases reveals that a second-charge option is often more expensive than a remortgage.
Second-charge lending typically incurs higher costs unless a borrower is locked into an expensive mortgage tie-in and requires urgent funds. Even in these situations, second charges are generally considered a last resort.
Looking ahead, this trend seems unlikely to shift significantly. However, we remain open to revisiting our approach if advancements in software enable instant, reliable comparisons between lending options.
In the meantime, we will continue monitoring these changes to assess their long-term impact on the UK mortgage market. Our stance reflects a cautious and pragmatic response to evolving regulations.
Thank you for reading our publication on “Second Charge Market Watch | Expert Brokers Exclusive.” Stay “Connect“-ed.
