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Mortgage Strategy Second Charge Watch by: Michelle Westley, Head of Marketing at Brightstar Financial

Last autumn, I wrote a number of articles in the trade press about research we had undertaken at Brightstar Financial amongst a group of more than 1000 brokers. It found that 74% admitted they didn’t talk about second charge mortgages whilst working on their clients’ purchase or remortgage, or indeed at any point during the term of their product.


We looked at why brokers have still not engaged with the sector as they should have done and whether more education was the answer. However, the most common reason given by brokers for not talking about second charge mortgages in our research was not that they didn’t have the right knowledge but that they did not have the time, or simply forgot.


The conclusion we came to was that it’s perhaps not education that is now needed, but action to change behaviours and help develop new habits. And this is where I think we are when it comes to diversity in the sector. It’s a topic we have spoken about at great length and in great depth, and rightly so. However, we are still not where we should be in terms of more diverse representation at all levels in businesses involved in the specialist lending sector.


At the Brightstar Group, we have a very progressive culture that promotes the benefits of diversity and wellbeing, but there are still moments when somebody says something in a meeting that isn’t particularly progressive. It’s often difficult to point this out at the time, but by ignoring it we are not addressing the issue. It is usually the case that someone hasn’t intended offence – they just haven’t thought about what they are saying and how it could be interpreted through someone else’s ears.


So, we have come up with the system of an anonymous honesty box that people can use to highlight any language or behaviour that they deem to be inappropriate. The purpose of this is not to name and shame, but to make our management team aware so that they can monitor how we are performing as a business on this front, put steps in place to improve performance and address any consistent issues.


This is a good example of doing something differently, that actually helps to change behaviour rather than simply paying lip service to it.


Doing things differently can pay dividends in terms of culture and also when it comes to business, and one of the success stories we have seen in recent months is Brightstar’s semi-exclusive launch with Selina Finance to provide semi-exclusive distribution of the lender’s overdraft-style lending facilities.


At its core, Selina Finance is a second charge mortgage lender. But by offering pre-approved facilities where borrowers can draw and repay funds whenever they choose, rather than taking a loan as a lump sum, it offers brokers a more flexible way of helping their clients to meet their funding objectives.


For example, for a client looking to make home improvements, the flexible facility can enable them to pay for the initial cost of materials upfront and then draw additional funds as and when the payments are due to contractors. Or it could be used as a means of paying school fees – with a large facility secured against a property and only drawn on when the fees are due. Similarly, with a major life event like a wedding, where costs will be spread over a period of time, this approach to second charge lending can save money on interest costs as the money is only taken when it is needed, and this can be very appealing for borrowers – changing the way they think about using a second charge mortgage, and improving engagement with the product,


This approach can also be used by property investors who want to make use of the capital to leverage and grow their portfolios, and it can provide a business credit facility, providing everyday working capital or funds for expansion.


With a product like this, borrowers can draw and repay funds whenever they choose, without incurring additional fees or penalties and only paying interest on the amount that is outstanding. It is worth noting that after the first five years, the outstanding balance on the revolving credit facility reverts to a traditional second or third charge for the remaining term. But this simple innovation to do something differently and provide an initial credit facility rather than a lump sum loan, is already changing behaviour – encouraging more brokers to engage with the second charge market and opening it up to many new customers.


When it comes to diversity, and when it comes to growing the second charge mortgage market, we still have room for improvement. Doing things differently can help change behaviour and move things in the right direction.


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