Second Charge MarketWatch
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 options will now learn about the conventional remortgage route and second-charge loan viability. Delving into MarketWatch’s second charge reveals a distinctive landscape unfamiliar to many 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 seamlessly integrate second-charge business. 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 that of 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 traditionally 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
Like many others, I believe that the upcoming changes for a second charge option with a mortgage are unwarranted.
Once again, we face a regulatory change adopting a ‘one size fits all’ approach, contributing to intermediaries’ workload.
This change seems unlikely to benefit consumers significantly or expand their choices, becoming a checkbox exercise instead.
I am concerned that this change will lack substantial value regarding consumer protection or choice enhancement.
Despite our reservations, we have delegated these changes to external secured loan brokers for implementation.
The genuine need for a second charge application appears to be quite rare in practice.
Upon reviewing our remortgage cases from the past year, we found that a second charge is typically more costly than a remortgage.
Second-charge lending tends to be pricier unless a client requires funds while burdened by an expensive mortgage tie-in.
Looking ahead, I don’t anticipate a change in this trend, and I see second-charge lending as a last-resort solution.
We will monitor the situation closely and reconsider our stance if reliable, instant comparisons are enabled by our software.
We’ve reached the end of our publication on “Second Charge MarketWatch.” Until next time, stay “Connect!!