The second-charge market has probably never had more support from the world of first mortgages, writes AMI chief executive Robert Sinclair.
Back in the day when seconds were a £6bn industry, customers were being sourced directly from Ocean TV, a mass of press advertising and leads from an unsecured market that sold on its ‘fails’. Most of the tabloids’ profits came from second-charge adverts. In 2015 it still has the unsecured market’s fails, but is much more about dealing with referrals from first mortgage brokers who cannot place many of their customers in a post-Mortgage Market Review world.
Master brokers are now much more focussed on relationships with networks and larger advisory firms than lead generation. As a significant number of borrowers either cannot get a further advance because of affordability concerns, or have an existing mortgage deal that is too good to want to lose, the option of a second charge loan is increasingly attractive. Any first mortgage broker who markets themselves as providing great advice from as wide a range of options as possible needs to consider a second for many of the enquiries received.
As things stand today in the first mortgage world, with new affordability models that have still to be refined post-MMR, stress testing at higher market rates and a general flight away from any customer who has missed payments or had a credit blip; the first mortgage broker needs to have seconds in their armoury in order not to waste the leads they gain. Currently second charge lenders can be a little more expansive in their lending policy as they have not yet come under the full FCA mortgage regime. This means that many of the clients that have been excluded by the change in prime lender policies since the crunch can still be helped, but often at a price.
The big changes will come towards the end of this year as firms implement the move of seconds into the first mortgage regime and these rules are amended to reflect the changes required by the European Mortgage Credit Directive. The major change is that seconds and firsts will be in the same regime with all the same rules. First charge brokers will need to decide if they will exclude seconds from their scope of service as many already do with further advances. Where first mortgage brokers decide to keep seconds within scope they will have to decide if this is something they are going to advise on themselves, or are going to pass this on to a specialist seconds broker – often known as a master broker.
Excluding seconds from scope will not be the end, as either the broker will decide that a second is the best option, perhaps due to their client’s existing mortgage being very well priced, or there will be more to consider. Is the existing first mortgage plus the costs of the second better than a remortgage? How these decisions are made, and who has responsibility for them, will be business agreements that will have to be forged between firms. Care will be required to ensure that all parties act in the customer’s best interests and they are passed between firms sensitively and within the rules.