In a market where diversification is often seen as a measure of progress, Colonial Second Charge Loans has stuck with what it knows best. Operations manager Sherry Goodchild explains why it was a strategy that worked.
The seconds market is changing. Second charges are moving increasingly in line with firsts and firms in both camps are starting to embrace a wider range of products. It’s interesting, then, to see that Colonial Second Charge Loans – the Brighton based master broker headed by Mark Fry – has bucked the industry trend.
“We are one of very few brokers that have stuck to what we know best and have resisted diversifying into other areas in the financial market which in turn makes us truly specialists in seconds,” says Sherry Goodchild, operation manager. “Our management team which includes Joe Askew (new business manager) and Grace Fuller (recently appointed processing manager) have over 50 years combined experience in the second charge market.
“Like many of the founding fathers of the second charge industry – I’m not sure Mark would like me referring to him like that but after 30 years in this industry that’s how I see it – our managing director’s interest in second charges grew out of his time working for First National in the 1980s.”
After leaving First National in the late 1980s Fry set up his own company advertising in local newspapers for people in Sussex wanting homeowner loans.
“Back then he was typing out credit agreements on a typewriter and could only dial out if the fax machine wasn’t on,” says Goodchild. “Technological advancements aside the company has moved on from that point to the award winning team we are today. Although Colonial still has the same values and beliefs Mark installed at its heart – the client and their needs come first.”
Goodchild joined the firm as a loan processor in 2007. Originally from Bow in East London she had moved to Brighton to study Mathematics and Statistics at Brighton University.
“During my time at university I did the usual student jobs – working in a seafront bar, cold calling in a call centre, data entry for the post office but then I got a temporary assignment working at Lloyds Bank in the audit team. It was here that I realised finance is the industry I wanted to work in for the rest of my life – or until I win the lottery,” she laughs.
“So when I left university I was fortunate to be offered a job at Colonial. Nine years on I’m still here; but sadly no longer the baby of the company but more like the mother hen now working as the operations manager.”
It’s a role that has been crucial over the last two years as the firm dealt with the sweeping changes brought about by the change in governance of the market. Goodchild says Colonial recognised early on that a complete overhaul to the way the industry operated was needed going into the new MCOB.
“Due to rules on independence we were not able to just adopt one strategy going forward as we wanted to cater for all our brokers regardless of how they wanted to work with us,” she says. “As such we devised two processes; one where we give the advice which involves carrying out a full fact find with the client and recommending a product that suits their needs and the second where we are packaging for the broker who is responsible for the advice.
“This means that if you are predominantly a commercial broker or have restricted your scope to first charges only we are happy to deal directly with the client.”
Colonial has used the period of change to review its commission policy with the FCA guidelines on this in mind. It now offers a three tiered packaging fee (rather than charging a varying percentage of the net loan size).
Where a mortgage broker is responsible for the advice Colonial will forward them 100% of the lender procuration fee on completion.
Discussion persists around whether or not brokers may opt to sell direct without the use of a master broker or packager now that they are required to at least acknowledge the existence of second charges. However, Goodchild doesn’t see this happening any time soon.
“It is inconceivable to think that on March 21 mortgage brokers who had very little experience in second charges woke up that morning having direct agencies with lenders allowing them to source a second charge for their client,” she says. “Or that they would have the necessary skill set to be able to issue the documentation and package that application fully to submit direct to the lender. This is where the master broker is crucial.”
Goodchild says the master broker’s new role in the market is to educate and guide mortgage brokers to the product that best meets their client’s needs and objectives noting that this isn’t by “just blindly following sourcing systems”.
“The market is still very much non-autonomous so cases are often written outside published criteria,” she adds.
Once the mortgage broker has recommended and advised their client (which they now need to do if wanting to be independent) Goodchild says it is the down to the master broker to ensure the loan completes as quickly as possible – a process which involves a range of tasks that first charge brokers are unlikely to be familiar with since they are predominantly dealt with by the lender or solicitor for a first charge application. Tasks such as checking the land registry office copies for the security are sound and instructing valuations directly with a surveyor.
“This list could go on but the point is it’s not easy,” says Goodchild. “It also carries a potential cost as although fees can now be paid upfront for a second charge the vast majority of applicants, when given the option, will elect to add these to the loan and when doing so these application costs need to be met by the master broker and reimbursed by the lender on completion.
“Hand on heart if I was a mortgage broker I would not entertain doing all this myself and would make sure I teamed up with a specialist who could do it which would free up time to get more clients.”
With brokers unlikely to turn away from master brokers then (albeit using them as a packager facility instead) Goodchild says there is little for the sector to fear going forward.
“I think the biggest challenge to the market has happened,” she says. “We have all had over a year of regulatory changes. All lenders and master brokers have had to submit an application to the FCA to become fully authorised and that in itself is no mean feat.
“With first charges and second charges now in alignment and with brokers having to mention second charges in their initial disclosure as a way of raising finance I can only imagine the market to continue to grow. No longer can brokers shun this method of raising finance especially if they are wanting to remain independent.”
Goodchild says Colonial has seen an increase in lending to high net worth applicants and professionals who have historically steered clear of this method of finance.
“There are now more prime lenders than near-prime and rates have fallen at such a speed over the past 18 months that second charges are now competing with further advances,” she says. “No longer can second charges be ignored where you are approached by your client for capital raising this option needs to be explored.”