There is much debate at the moment around second charge mortgages and the fees which accompany them. Bradley Moore, director, second charge mortgages at Brightstar, takes a closer look to see if headlining fees reveal the full story.
Historically fees were all encompassing and were added to the client’s loan, clearly this is way too simplistic and created an additional cost to the client by way of accrued interest on the added fee.
The sector post-Mortgage Credit Directive is moving in the right direction and there is much greater flexibility around fees which can now be added to the loan, paid upfront or paid on completion.
Many master brokers have now moved away from the ‘percentage of loan amount’ structure of old and are now charging a lower application fee across the board. But, at the same time they are allowing the introducing broker to dictate the fee that they will charge in addition to this, and also passing the upfront costs such as the valuation on to the client. Should the loan not complete, the client will be liable for the abortive costs incurred.
For some master brokers, the upfront application fee works and being able to pass on the set up costs to the borrower is of course better for them commercially.
On the flip side, not all clients want to pay application fees and many will prefer to only incur costs at a time when the funds are secured.
The point I am making is, there is more than meets the eye to the ‘headline low master broker fee’ and research tells us that some borrowers will in fact be worse off by this structure.
I believe the challenge for all second charge master brokers, as the sector evolves and migrates further into the mainstream, is to give as much choice to our clients as we possibly can, therefore ensuring we meet their individual needs as part of the regulated advice process.