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POSITIVE STEPS FORWARD FOR SECOND CHARGES

By Bradley Moore

The second charge market continues to grow as lenders respond to rising demand and increased lines of funding and increasing their product offerings. Seconds are getting a high profile at the moment now they are in the spotlight with all the developments around the Mortgage Credit Directive (MCD).

As the MCD will create a level playing field between first and second charge mortgages, it is no surprise to see the addition of fixed rates to the second charge portfolio from the majority of lenders as they seek to get ahead of the regulations and align their product offerings now to those of the first charge mortgage market. Other new developments include a suite of second charge buy-to-let products with rates as low as 5.79% from Prestige Finance.

I really believe that the impending changes are very much a good news story; what better way to market a sector than by bringing both processes and the products in line with a much larger market?

When mortgage brokers, IFA’s and their clients see that the only real difference between the two is that one is called a first charge and one is called a second charge I can only see them being offered more widely. Once the process for taking out a second charge is the same, the MCD should lead to the end consumer, who is much more familiar with a first charge, being able to grasp the second charge concept much more easily. If it also proves to be a more cost effective option than a remortgage and a more flexible option than a further advance then take up of second charge mortgages is set to increase steadily after next March, especially if mortgage brokers are required to compare the pricing of all three.

Currently the similarities are few and far between and this creates its own problems. There are mortgage brokers that have been doing the job of advising on mortgages for decades and yet have never offered a second charge through a lack of understanding and therefore a fear of giving the wrong information. Of course for those brokers that pick the phone up, specialist distributors such as Brightstar can ensure that every broker has comprehensive and accurate information and can even talk them through the process or do it for them. Shawbrook Bank has also been doing a really great job of supporting brokers and educating them about the impending MCD changes, through workshops and presentations so there is help out there for brokers who do not feel that they know enough about this.

But what about those that do not pick the phone up and simply dismiss the idea of a second charge mortgage? The alignment of the two sectors should mean that dismissing seconds out of hand without looking at the implications for the client is no longer possible. The end result should be a better understood sector that provides opportunity and solutions for brokers and customers alike.

March 2016 is fast approaching. Advising on seconds will now be covered by mortgage permissions rather than the Consumer Credit Act and many brokers who already deal with second charges are currently in the process of putting their application in to the regulator or have their application awaiting approval to make sure that they can continue to give advice after the MCD is in place.

It is clear that there are still challenges ahead but I am confident that the addition of the current cohort of ‘second charge master brokers’ to the greater market is a healthy one. Despite obvious concerns from some who have never run an FCA authorised business before I think they will be surprised at how many of the requirements they already satisfy.

I think we are slowly but surely removing any uncertainty of what the landscape looks like post March 2016 and the master broker community has definitely come together to ensure that it works closely with both lenders, the regulator and with brokers to make the process as smooth as it possibly can be.