Second Mortgages, Brexit Fallout, and Broker Fees
A number of things have worked together over the last eight months to create a new and emerging market for second mortgages. What has mostly been a flat-lining business since the earliest years of the housing crash recovery is poised to become much more profitable in the coming months. This has some in the second charge arena looking more seriously at second mortgages, fallout from the Brexit vote, and potential changes in broker fee structures.
The second charge sector has government regulators to thank for forcing mortgage brokers to offer their clients second charge products in order to retain their independent status. As of spring of this year (2016), brokers were already increasing their second charge business as a result. But then came the Brexit vote in June. That could be a game changer, according to Mortgage Strategy contributor and mortgage specialist Steve Harness.
Harness wrote in an August 3rd piece that the likelihood of a base rate drop is pretty strong within the next month or so. Although Bank of England Governor Mark Carney hinted at a rate cut just after the vote, that never materialised â?? probably because the Prime Minister was replaced so quickly. But Harness believes a cut is now on the cards before summer is out.
A base rate cut would invariably reduce interest rates for mortgage borrowers. Lower rates and moderating home prices could combine to increase business for both traditional and second mortgages in all but the most depressed markets. And even where customers are not looking to buy homes, they are more likely to consider second mortgages for the purposes of completing home renovations or financing debt consolidation.
A Change in Fee Structures
Harness went on to explain in his article that master brokers who want to take advantage of the emerging second charge mortgage market need to make changes in the way they set their fee structures. He says second mortgages and secured loans need to be structured the same way first mortgages and remortgage products are. That means a developing a â??customer-centricâ?? fee structure, according to Harness.
Bringing fees for secured loans and second mortgages more in line with what customers pay for first mortgages would help boost business by making it more affordable for consumers to borrow. Those who have been holding off on home improvements or debt consolidation may be motivated to look at second mortgages through a combination of lower interest rates and more reasonable fees.
Harness offered the example of master brokers looking at fee structures through the lens of personal experience. Asked what he believes a fair fee structure would look like, Harness explains that he would be comfortable charging customers rates comparable with what he would like his own mother to experience within the second charge market. If it's too high for mum, it's too high â?? period.
Where We Go from Here
Where we go from here with second mortgages and unsecured loans is anyone's guess. If a rate cut does happen before the end of September, it would probably have a minimal impact in the short term. But once the summer travel season ends and people start preparing for the winter, more consumers could be motivated to borrow for home improvement purposes.
It is possible that the second charge market will look very different a year from now than it does today. Hopefully, any new look will be a positive one, with more consumers looking at secured loans and second mortgages to meet their long-term financing needs. It would certainly be good for both consumers and the economy.
Mortgage Strategy -- https://www.mortgagestrategy.co.uk/12-secured-loans-watch/
Instantly compare 950+ of the UK's best secured loans
Rates from as low as 3.75%