Second charge marketwatch
Starting from March 21st, the Mortgage Credit Directive (MCD) will bring about significant changes in the regulation of second-charge loans, aligning them with the regulatory framework applied to first-charge mortgages. Individuals seeking refinancing options will now be informed about the conventional remortgage route and the viability of a second-charge loan. However, delving into the second charge MarketWatch reveals a distinctive landscape unfamiliar to many mortgage brokers.
Master brokers, acting as intermediaries between advisers and lenders, introduce an additional layer of complexity. Securing consent from mortgage providers requires extra processing steps, and lenders exhibit varying risk appetites, occasionally demonstrating increased flexibility. As the second charge gains prominence, mortgage entities, including firms, networks, clubs, brokers, and representatives, must adapt their advice or business models to accommodate the evolving regulatory landscape.
In response to these changes, our panel of experts in first-charge mortgages outlines the adjustments they’ve made to integrate second-charge business seamlessly. Liz Syms, the director of the specialist mortgage network Connect for Intermediaries, shares insights into her efforts to attain master broker status, positioning her firm within the second charge distribution chain for its members.
Simon Collins, the product technical manager at John Charcol, discusses how a recent business acquisition empowers their intermediary firm to handle second-charge business internally. Meanwhile, Dominik Lipnicki, director of Your Mortgage Decisions, acknowledges the comparatively low volume of cases favouring second-charge loans, influencing his decision to outsource, at least temporarily. This underscores the dynamic nature of the mortgage landscape, prompting stakeholders to reassess and adapt their strategies in response to regulatory shifts and emerging opportunities. MarketWatch
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, quickly gaining popularity among our clients and brokers. However, we identified occasional needs for a more traditional second-charge offering.
Anticipating regulatory changes, we entered this market by establishing partnerships 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. For some, it’s a straightforward contract, while others, like Castle Trust and other secured lenders, require training and accreditation.
Our collaboration with Castle Trust closely resembles that with a first charge mainstream lender, with them managing paperwork and valuations. As master brokers with other second charge providers, we oversee processing and valuation instructions.
The unique processing requirements in this market, including issuing credit agreements and conducting credit and Land Registry checks, differ significantly from mainstream applications. This distinction prompts many mortgage advisers to opt for specialized master brokers like us.
Our deliberate choice to initially engage with only three key agencies allowed us to familiarise ourselves thoroughly with their specific requirements. Adopting a ‘wait and see’ approach, we are evaluating post-MCD offerings from lenders, as many are contemplating providing advisers with a choice of agency—either a master broker handling all processing or a simpler agency allowing advisers to work in a more familiar manner, akin to first charge lenders. 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 approach to handling second-charge inquiries has closely mirrored that of first-charge inquiries. Our consultants meticulously go through the advice process, conducting a comprehensive fact-find and initially assessing the feasibility of obtaining a further advance from the current lender. Subsequently, we weigh the advantages of a full remortgage against the value a second-charge loan offers. Suppose a second charge is deemed the optimal choice for the client. In that case, we traditionally refer them to a trusted external company with which we’ve maintained a strong and enduring relationship over the years, alleviating any concerns about our ongoing client relationships.
Despite receiving no complaints about the service provided by the referred external company, the recent acquisition of Simply Finance empowers us to handle these matters in-house. Our approach to second-charge loans is anticipated to remain consistent, with consultants adhering to the standard advice process to ensure that second charges are recommended only when most suitable for the client’s specific needs.
While the Mortgage Credit Directive (MCD) and second charges had been on our radar for some time, they were not the primary motivation behind the acquisition of Simply Finance. Nevertheless, incorporating Simply Finance has proven to be highly advantageous in navigating these areas.
Second charge Marketwatch | Dominik Lipnicki Director of Your Mortgage Decisions
Like many others, I believe that the upcoming changes regarding the simultaneous offering of a second charge option with a mortgage are largely unwarranted for the UK market.
Once again, we face a regulatory alteration adopting a ‘one size fits all’ approach. Unfortunately, it seems more likely to contribute to the administrative workload of intermediaries rather than significantly benefitting consumers or expanding their choices. I am concerned that this will become a mere checkbox exercise, lacking substantial value in terms of consumer protection or choice enhancement.
Nevertheless, despite our reservations, we have delegated these changes to external secured loan brokers. From our perspective, the genuine necessity for a second charge application appears to be quite rare.
Upon reviewing all our remortgage cases from the past twelve months, it becomes apparent that unless a client specifically requires funds while being burdened by an exorbitantly expensive tie-in on their mortgage, second-charge lending tends to be more costly compared to a remortgage or a further advance.
Looking ahead, I don’t anticipate a shift in this trend. I continue to regard second-charge lending as a viable solution only when a case is unsuitable for remortgaging. Of course, we will keep a vigilant eye on the situation. We may reconsider our stance if our chosen mortgage sourcing software enables a dependable and instantaneous comparison.
We’ve come to the end of our publication on “Second Charge MarketWatch.” Until next time, stay Connect!