You recently launched into the second charge market. Can you explain why you thought it was important to do this?
Two reasons really. Firstly, the opportunity became very apparent to me in the run up to MCD . Psychologically the product becoming regulated by the FCA was an important piece of the jigsaw. As someone who has been regulated in some way , shape or form since 1991 it was important to me that I could see a second charge mortgage in the same light as a first charge one.
Secondly, I am a DA broker and very conscious of how we sometimes fall off the radar. I think it is important that those us who have stood up to be counted and taken their authorisation straight to the FCA begin to work together. In our monthly masterclasses that we run we show how understanding and then embracing 2nd charges can directly improve advisers profitability. We explain in detail real life cases talking as one broker to another and it is amazing to hear the advisers afterwards talk about cases that they have turned away through not being aware of alternative lending solutions. I make the adviser aware that we do not have any hidden agenda, no company cars that need paying for and a shared sense of knowing what our job entails. This positions us uniquely in the market I believe.
You’ve been vocal about advisers charging too high fees for second charges, why do you think this is happening? Do you expect fees to come down as brokers become more comfortable with offering seconds?
Greed. I have heard first hand anecdotal experience of a fee of £8,000 being charged on £100k loan with the client also paying all associated costs .The broker asked to lower the fee but the packager wouldn’t allow it. I can’t help but think the industry gorged themselves on high fees prior to MCD. The interesting thing to observe now as the tide goes out on poor practice is who has the better business model to survive in what will become a regulated, competitive and client centric proposition. We expect to see fee’s come down to around 2% of the loan size however each case is individual and has to be dealt with as such. We allow the introducer to structure their fee, as it is their client and they know the person better than anyone. And it is not just the second charge market I am concerned about. I saw a client charged over £8000 for a 1st charge deal for which we would have charged £499
Reports claim 80% of brokers will include second charge in their advice process. What would you say to the remaining 20%?
Call us, come along to a seminar! I worry how many of those 20% are the small DA’s that need the most help. I have ideas how we can find these people but they need to be trying to find us as well. The last thing they want to happen is a client comes back after an advice process to say “could you have not recommended a second charge for me ?” Once that happens your credibility is gone as is the client. You only need a little bit of knowledge to stay relevant and you don’t even need to give the advice , we’ll do that for you . But you have to at least be in the game for that to happen. Don’t give the ambulance chasers another business opportunity by crystalising a redemption penalty by remortgaging when a second charge could have done the job just a well.
What challenges do you see for the market going forward?
Difficult to say because you sometimes don’t see the problem until it is on top of you. There are always going to be referendums, wars and black swan events that you just can’t predict. We’ll deal with those as and when we need to. I don’t worry too much about competition as that’s healthy and we need to be working together for the greater good of the second charge market. I will say though that going forward I will be doing my best to get DA advisers assembled as a collective force , circling the wagons and starting to push back together and regain some ground back off the networks.
Finally, what do you have planned for London Money for the rest of 2016?
London Money as group has different objectives but for London Money Loans as a separate entity it is quite simple – traction. We carry very minimal overheads which is a real blessing. It is a blessing because we don’t need to talk to all and sundry and it gives the financial power back to the broker so they can structure a sensible deal for their client. Again, it comes back to education. We restructured a deal for a broker that reduced the fees for the client but kept the broker’s income the same. This, after he had already placed it with the lender. Not many packagers think like that. The feedback thus far from the two masterclasses is extremely positive and the deal flow entirely satisfactory for where we are and what we want to do going forward.