31 October, 2014
Come 2016 all second charge brokers will need to be qualified in CeMap, transforming them overnight from second charge brokers into mortgage advisers. So will it make sense for second charge firms to also offer first-charge mortgages in the new regulatory world?
Conflict of interest
It might seem like an obvious route for second charge firms to take once all staff have gained their mortgage qualification.
But in practice, questions over who will be responsible for the advice of the mortgage may deter some second charge brokers from straying into the first-charge arena.
Barney Drake, operations director of Y3S, says its message to intermediaries has always been that it works hand in hand with their business.
“They specialise in first charge business, we specialise in second charge business,” he says.
“We receive all of our business from mortgage brokers, so us offering first charge mortgages would be a potential conflict of interest, so currently there are no plans to offer this product range.”
Through its sourcing system however, Drake says it can compare re-mortgaging as a means to raise additional funds with keeping an existing first charge and taking out a second charge.
Steve Walker, managing director of Promise Solutions, says there is less of an incentive for specialist loan packagers to offer remortgages as their introducers are mainly mortgage brokers and will already have considered this.
“Revisiting an introducer’s advice could lead to conflict,” he warns.
Tim Wheeldon, joint managing director of Fluent Money, says just because second charge brokers will have their CeMap qualification, it’s not necessarily a natural step for them to also start offering firsts.
“Actually comparing a first against a second and giving advice on that is quite a difficult thing to do,” he says. “You may get firms who will open up separate businesses doing firsts because they have the expertise and staff that they can transfer across but I can’t see a lot of the big brokers getting involved in firsts alongside seconds.”
Demand for Advice
Walker says for some second charge firms it may make sense to also offer remortgages, especially where their business comes direct from the public via lead generation or their own advertising.
“There may be demand from mortgage brokers for second charge brokers to take responsibility for the sales process,” he says.
“Some introducers may wish to divorce themselves from the entire sales process, in which case loan specialists may find a demand to offer both loans and mortgages on behalf of introducers.”
Alistair Ewing, director of Blimey Loans, says its staff are working towards their CeMap qualification and offering first-charges is something it will look at in the future.
He says: “We have been directly authorised by the Financial Services Authority for mortgage business before, and yes it is very likely that we will apply for a variation in FCA permissions to include mortgage advice as well.”
It will be very much the job of the mortgage broker to decide whether or not they want to be responsible for the advice.
Paul Crewe, director of Smart Money, says: “Mortgage brokers could use a packager for a shortlist of alternative second charge options from which he/she can choose to offer advice to a client.
“They could also refer a client to a packager/distributor who is taking on the advice role and will have to research and show remortgage and second charge options before making a recommendation directly to the client, regardless of any initial advice offered by the introducing broker.”
Whether or not second charge brokers decide to offer first-charge mortgages will in some ways be a decision that is out of their hands and be led by mortgage brokers. If mortgage brokers do wish to hand over their client and the advice process to a second charge broker, they will have no option but to also advise on remortgages and further advances.
Who will be responsible for the advice process will no doubt become a hot topic in the market over the next few years and whatever decision broker firms reach it will need to be one that is understood and agreed upon by both sides.