2nd Charge Mortgages Still a Mixed Bag for Brokers

Alex Parsons Alex Parsons | Secured Loan Expert

Earlier this year (2016), the Financial Conduct Authority sought to broaden the appeal of 2nd charge mortgages to the borrowing public by requiring mortgage brokers to offer them on equal standing with other mortgage products if they want to maintain their independent status. The idea was that giving consumers another choice to borrow would encourage them to do so and, as a result, stimulate the mortgage market. Almost six months later, the results appear to be a mixed bag for brokers.

Regulations require brokers to offer their clients 2nd charge mortgages along with remortgage products and standard mortgage loans. Some are doing so; others are not. So while regulators work on ways to enforce the new rules, the mortgage industry must ask itself why some brokers are still hesitant.

According to Financial Reporter's Andrew Fisher, both master brokers and 2nd charge lenders have begun doing their homework to make sure they are well informed on second charge products. But that does not mean they are any more assured about offering them to clients. Fisher suggests that brokers may simply be unaware of how beneficial second charges are to certain kinds of borrowers.

He says second charge loans can benefit borrowers who:

  • want to rebuild credit
  • wish to finance while retaining their existing mortgages
  • want a financing tool that is flexible in terms of repayment
  • need a loan for something that cannot be financed another way
  • want a loan with a higher loan-to-value ratio
  • want to use buy-to-let property as collateral.

In any of these scenarios, a second charge product could act as bridge financing for just about anything. That's not to say that all 2nd charge products would be structured in this way, but second charge products are a good way to generate bridge financing with a little more flexibility than would otherwise be afforded.

Time to Get Moving

Fisher reminds brokers that now is the time to get moving on 2nd charge products. It's been about six months since the regulator implemented the new rules, and officials have been lenient thus far. But that leniency will not last forever. At some point, the FCA is going to be taking a good, hard look at brokers and their practices. They are serious about stripping brokers of their independent status if they are unwilling to embrace 2nd charge mortgages and other products.

On a more positive note, not everyone affected by the new rules has been slow to adapt. Take Positive Lending, for example. They saw a great opportunity to make a splash in the second charge market by creating a new fee structure that would be attractive to brokers. They now charge a flat £995 fee for residential second charges; brokers retain 100% of the procurement and broker fees.

Positive Lending's fee structure has worked so well that the company has doubled their second charge business. They have not said exactly how many transactions they have completed, but they claim their numbers in August (2016) were twice those posted in May.

The good news for consumers is that there are some excellent second charge products out there if they know where to look. Whether it's Positive Lending or another company, there are lenders more than willing to make second charge loans to borrowers not interested in standard remortgage or personal loan products. As always, the key is to shop around and compare multiple loans from reputable lenders.

The new rules are here for 2nd charge mortgages and other products. Some brokers may be slow to get on board, but those that have embraced the rules appear to be doing very well indeed.

Sources:

  1. Financial Reporter ?? http://www.financialreporter.co.uk/specialist-lending/are-mortgage-brokers-truly-embracing-second-charge.html
  2. Mortgage Solutions ?? http://www.mortgagesolutions.co.uk/specialist-lending/2016/09/08/positive-lending-doubles-second-charge-mortgage-completions/

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