Europe. Europe. Europe. The political and economic agenda is dominated by one topic at the moment, and that’s before we even get going on the negotiations to leave the EU. We all know the huge influence the EU has had on our market – I give you exhibit one, the European Mortgage Credit Directive (MCD) – and one can’t help think that amongst all the negativity levelled at laws, rules and regulations which come from the EU, the positive changes they can deliver have been too often overlooked. Perhaps there is a message there for how the ‘Remain’ campaign should have conducted itself?
However, that is all now by the by. ‘Brexit means Brexit’ we are told and we must get on with it, however let’s not forget that when it comes to the second-charge mortgage market, there are a large number of positives to be gained from the MCD, and we should also not ignore the opportunities that lie within the seconds sector for both advisers and their clients.
Firstly, and without question, the MCD has brought second-charge mortgages onto the agenda of a whole new set of mortgage advisers. Where once, seconds would have been ignored or (at best) given a cursory glance, the new rules mean mortgage advisers at least need to acknowledge the existence of second charges. However, this does not mean that the provision of second-charge recommendations is reaching unprecedented heights.
Over the past few months in particular, we at The Loans Engine have taken part in numerous events, exhibitions and roadshows with a significant number of advisers in attendance. It’s anecdotal but in terms of active engagement with second-charges, I tend to come across what I call, the ‘10%-ers’. So, for example, in a room of 50 mortgage advisers, when I ask for a show of hands from the attendees in terms of the number who’ve actually written a second-charge mortgage in the last year, I will invariably get five or so who raise their hand.
This 10% tends to be the case regardless of the number in the room and, while I might even think to myself that if I’d asked that question last year, it would have been considerably lower it’s not exactly a figure that sets the world alight. My attention at this point will turn to the other 90% because, in a very true sense, I know that the other 45 advisers are without doubt sitting on considerable pent-up demand for the product.
Now, it’s not necessarily a totally negative picture amongst the 90%. As a business, since the introduction of the MCD, we have seen a considerable increase in enquiries about second-charge products. We could justifiably say that advisers are ‘giving it a go’ when it comes to seconds but at the same time we have lenders telling us that business volumes are relatively flat.
In essence, the business completions are not tracking the increase in enquiry levels. Which again, to me, seems rather counter-intuitive – advisers are starting to see that in a growing number of circumstances their clients might well be suitable for a second charge. The opportunity to write this business is there however, following the enquiry, the deal withers on the vine and little incremental business is being written. We must ask the question: Why?
Maybe it’s the high level of fees that are charged within the seconds market. These advisers take a look at seconds for the first time, and the costs appear to confirm what they have always suspected; the fees are just too high for the deal to make economic sense for the client. I’m even aware of certain circumstances where the client seems willing to precede with the deal and pay the fee, however the adviser (perhaps understandably) advises very strongly against it, looks at the numbers again and another option is recommended.
So, how can we change this around? How can the industry move to a fee position which sits comfortably with those mortgage advisers who want to help their client to access the finance they need, but are simply not prepared to expose their clients to the considerable fees that come with seconds?
The answer has to be that we grasp the nettle, and change our fee structure. The market is crying out for a fee model that they are familiar with, one that sits comfortably alongside a first-charge remortgage; one where the fees are a few hundred pounds, not the thousands that have traditionally been charged for seconds.
Until we are able to offer such a fee model, the likelihood is that seconds will of course be reviewed by the adviser, but they will not be recommended, and the opportunities that exist within the seconds market will not translate into actual business. We need to offer a fee solution that a new generation of holistic mortgage advisers, who are looking at seconds for the first time, understand and are therefore prepared to endorse to their clientele. Only then will we see the progress that is there to be made.
Steve Harness is commercial director at The Loans Engine