From June, networks can apply to the Financial Conduct Authority for their full Consumer Credit authorisation.
Now that second charge mortgages fall under the FCA it is expected that most networks will apply for full authorisation in order to cover the compliance costs for their members.
Yet some networks are in two minds as to whether to still offer the facility for their Appointed Representatives. So will mortgage brokers take it upon themselves to gain authorisation and who will be responsible for advising on the loans under the new regulator?
Making the Switch
The switch across to the FCA from the Office of Fair Trading was designed to make it easier for mortgage brokers to offer secured loans but the cost of gaining a licence under the new regime has made some think twice.
John Cupis, managing director of mortgages at Sesame Bankhall Group, says it is still weighing up the costs and benefits of applying for full CC authorisation.
He says: “There are things to consider, such as the amount of secured loan business we have going through the network and what demand there is for secured loans generally.”
The network recently stopped offering secured loans through its packager business Sesame Bankhall Specialist Lending Services.
Cupis says: “Volumes have been so small that it hasn’t warranted us carrying on with second charges since the new regime came in on April 1, instead we have decided to just process first-charge loans through SBSL.”
In terms of the network, Cupis says it is not just secured loans it has to factor in when it comes to applying for its CCL.
“The CCL is not just one generic item because there are different categories within the licence, so there are a lot of complexities for us to consider.
“A significant number of our Sesame members already have their own interim CC licences, so if they want to continue referring customers they can.”
Steve Walker, managing director of Promise Solutions, believes it would be a mistake for networks to opt out.
“The European Mortgage Directive is driving mortgage brokers to look at all the options, including secured loans, which they should do as part of their obligation to treat customers fairly.”
He thinks it would also be beneficial for networks to hold the licence in order to protect their distribution.
“I believe that with the network’s permission, you can be multi-tied, so have one principle for mortgages and another for loans, as long as the network agrees,” he says. But I think if one network is going to offer secured loans then all of the others will also need to in order to protect their position.”
Gemma Harle, managing director at TenetLime, says it will be applying for a CCL in the summer.
“At that point, we will be able to offer the umbrella of our network agreement to advisers – as an alternative to them applying for full permission in their own right. The network option will be a ‘no brainer’ for the majority of firms, as it will cost less and be far easier to understand than the directly-authorised alternative.
“In particular, we believe it will prove particularly attractive to mortgage insurance and investment firms, whose credit activities are ancillary to their main business.”
She says the network has received a substantial amount of interest from members, the vast majority of whom have expressed a desire to take advantage of the facility.
Barney Drake, operations director at Y3S, says it is seeing cases on a daily basis where a secured loan is the better option for the customer over a remortgage.
“By networks not applying for full authorization, they won’t be able to offer a secured loan option and thus they will deprive their customers of the full range of options available,” he warns.
The Interim Period
Regardless of whether the network is renewing its licence, during the interim period network members will still need to hold their own individual permission in order to offer secured loans while the network awaits its full authorisation.
“The essential element is that the AR has the relevant interim permissions of credit broking,” says Drake. “We are unable to accept referrals from any business that does not have this permission. With every referral, we have to check that the intermediary has this and if they don’t, unfortunately we will not be able to assist.”
Toni Smith, sales operations director at First Complete, says it has always had a consumer credit licence under the OFT and currently has interim permissions whilst awaiting its full licence from the FCA.
She says: “We have ensured all appointed representatives get their interim permissions from the FCA until such time as they need to apply for a full license.”
With mortgage brokers having to apply for their own licence, it could lead to some brokers deciding not to apply for interim permission.
But Drake says: “What with MMR, and where a secured loan is best advice over a remortgage, we are seeing a significant increase in referrals from intermediaries.
“The decrease in business that we may see from mortgage brokers that may turn their backs on a secured loan (which is very small) is compensated many times over by the surge of business we have been experiencing for so long.”
So for those mortgage brokers offering secured loans under the new regime – what will change?
In the past, many mortgage brokers simply referred a secured loan onto a master broker, with little follow-up.
In the new regulatory world though, mortgage brokers and secured loan brokers will need to keep each other updated as to the end result of the referral in order to make sure it is still the best deal for the customer – something networks should also be mindful of.
Walker has created an online tool for networks and brokers, either wanting to sell the loan themselves or use a referral service.
Walker says: “There are two parts to the advice procedure – firstly, it is the mortgage broker’s job to decide what the most appropriate solution is for the customer, i.e. a secured loan, mortgage or further advance. Once the broker has assessed that then we take on responsibility for the loan, but the broker needs to make sure that in the wider context it’s still appropriate.
“Brokers need to be mindful that when it comes down to which is the cheapest and best it’s down to us and we may even take the customer down a different route as we are the ones giving the advice and that may not always tally with what the mortgage broker has recommended – although in most cases it should.”
The new regulatory world is not just new for master brokers when advising on secured loans but also for mortgage brokers. Whilst in theory a shared regulator should make it easier for mortgage brokers to offer secured loans it may also make them more apprehensive and unsure, which is where master brokers can help.