Tony Salentino, director of Complete FS, talks regulation.
The regulation of secured loans (second charge) which comes into force at the end of March, need not be the massive culture shock that many pundits would have us believe. What will surprise many is the fact that historically, secured loans have been ‘regulated’ longer than first charge mortgages, having come under the old Consumer Credit Act of 1974 and 2006, administered by the Office of Fair Trading. It would be fair to say that its efficacy, as far as comparing it with current regulatory standards,
was far from perfect in relation to consumer protection and the transfer of regulatory powers to the FCA along with the convergence of first and second charge regulation this year marks the final move to bring secured loans into a 21st century regulatory structure.
The primary consideration for all intermediaries advising clients on capital raising secured against their primary residence is that space must be given to ensure that clients are aware of every way in which funds can be raised. Simply advising only on one method or another is no longer acceptable, without making sure that clients at the very least are told that there are other methods.
Remortgaging is understandably very popular among mortgage brokers because of their familiarity with the mortgage market, but due consideration must now be given to a second charge alternative. To ignore the possibility that clients might be better off with a second charge loan is to risk not only providing the wrong advice, which would set off compliance warning bells, but also open up the questions of whether that adviser would be able to class him or herself as offering independent whole of market advice.
Many brokers are unfamiliar with second charge loans and or this reason, it is important that they do not simply ignore the changes taking place. Appointed representatives of networks will no doubt be receiving advice from their networks as to how they should proceed, but DA brokers should be in no doubt that a dual approach encompassing remortgage and second charge is the only way forward.
In terms of methodology, brokers can either provide the advice themselves or refer their client to a specialist third party when wishing to engage the second charge option. With the proliferation of sourcing tools, it might be assumed that having sourced a loan in this way, it will then be as easy as for a mortgage. However, the reality is that sourcing systems, even the best, are still no substitute for the human specialist in terms of knowledge and understanding.
So my final tip is to work closely with a specialist who offers a complete no cross sell agreement, to whom you can refer your client and ensure that clients benefit from a properly rounded advice service.