In March 2016, the final phase of the convergence of mortgage regulation will be in place and the first and second charge sectors will share the same rulebook, overseen by the FCA.
The fundamental question to be asked is what does the average intermediary do to ensure compliance and the right outcomes for clients seeking to raise capital secured against their home? Does the traditional mortgage broker simply carry on as if nothing has happened while reaching for the tried and trusted remortgage option, or does he or she recognise that the world has indeed changed and a fresh approach, which includes a secured loan option, is actually required to ensure best outcomes?
In many ways, the divisions between first and second charges will begin to blur – after all the only differences will be in establishing whether the lender registers a first or second charge and the fact that the first or second charges may have different lengths of term.
The process and the regulatory framework will be identical, so how does the enlightened adviser seek to provide the right advice?
Intermediaries have to make a judgement as to whether their clients’ circumstances merit a remortgage with all the upheaval that entails, or a secured loan which leaves the first charge mortgage in place and simply targets the need for specific extra funding.
Once that is done, assuming a second charge loan is considered the right choice to pursue, where does the intermediary go for the right advice?
Mortgage brokers will more than likely head to their sourcing system if it supports a second charge option. However, the variations and individual client circumstances tend to render any engine for sourcing as little more than a basic filter. The most reliable ‘sourcing tool’ in second charge lending is the human expert.
The next option for those of a masochistic frame of mind would be to trawl through the multitude of offerings from individual lenders and the subsequent phone calls/ online enquiries/emails to lenders, all hugely time consuming. How many brokers have the level of support to keep up to date with all of this, unless they employ a specialist on site?
The final option and the one I think will appeal to the majority of brokers, particularly those for whom second charge borrowing has been a closed book, is to become an introducer to a specialist distributor.
Provided advisers ensure that the distributor they choose is taking full responsibility for the advice given to the client, any broker can confidently add secured loans to their portfolio of services.
More distributors are receiving their permissions from the regulator, but some are still not taking responsibility for the choices they make for clients. This could leave brokers vulnerable after March, so I would make sure that they have done their homework. Not all second charge distributors are offering the same service.
Tim Wheeldon is managing director of Fluent Money