The second charge and mortgage market have long operated under different remits but come 2016 they will both fall under the same rulebook. So what will this mean for the sector’s trade bodies, and will it still be the case that two heads are better than one?
Second charge lenders have a defined trade body in the shape of the Finance & Leasing Association but with new lenders entering the sector from the mortgage arena should it also be the job of the Council of Mortgage Lenders to cater for the needs of second charge lenders?
Meanwhile, second charge brokers have a reputable trade body in the form of the Association of Finance Brokers, but with its sister organisation – the Association of Mortgage Intermediaries – representing the needs of mortgage brokers and constituting an arguably larger and better funded organisation, is it inevitable that the two will join forces?
Over the years, a new regulatory regime has often meant the reshaping of a sector’s trade representation, so will we see history repeat itself in the second charge market?
Giving the industry a voice
The AFB formed in 2006 as a replacement for the Corporation of Finance Brokers, and was intended to give the sector a louder voice in anticipation of the changing regulatory environment. By having the weight of the Association of Independent Financial Advisers behind it at the time, and now AMI, it has been able to push the needs of second charge brokers to the forefront of the regulatory agenda. The trade association however has not had it easy the past few years.
In the years following its formation the market was prospering and the trade body boasted hundreds of members and a properly elected board. As the credit crunch hit and firms left the industry, the trade organisation suffered.
Robert Sinclair, chief executive of AMI and AFB, says: “The market reduced considerably and membership fell. Even some firms who were left in the industry did not have enough funds to pay their membership, meaning the income of the AFB dropped considerably.”
As a result of the downsizing the trade organisation decided to scrap its board and just hold regular industry meetings.
“Last year however we decided it was appropriate to elect somebody from the AFB to sit on the AMI board as a representative,” says Sinclair.
Sinclair says a merger between the AFB and AMI is not out of the question but is not likely to happen anytime soon.
“The intention is that the AFB will remain a separate part of AMI for the foreseeable future with representation on the AMI board and AFB member meetings periodically, around every three months,” he says.
“When things become clearer about regulation and where the second charge market will sit we will make a decision about what representation is required, it might be that membership folds into one,” he adds.
Sinclair says the AFB currently has around 40 members, mainly made up of the bigger players in the market. In context there are just under 100 second charge loan brokerages operating in the market.
Steve Walker, managing director of Promise Solutions, is the former chairman of the CFB and was instrumental in setting up the AFB.
He says as a broker and member of the AFB he recognises that times have been tough for the organisation.
“There are not that many second charge brokers out there at the moment. There are only around 100 active, if that. So that is the size of the potential membership,” he says.
“Out of those firms there are a significant number that are doing just two or three cases a month and membership of the AFB is most likely an expense they cannot afford,” he says.
Walker however would not be in favour of seeing the AFB merged with AMI.
“Rob has done a great job keeping it all together and there is a lot of experience within the AFB and a lot of goodwill from broker members to support it.
“I think as an organisation it needs to have its own identity because what our market does is different to what mortgage brokers do. What we need is more brokers to get on board and support the AFB so it can continue to support the industry,” he adds.
Tim Wheeldon, managing director of Fluent Money, says as the second charge and the mortgage industry are to come under the same rulebook in 2016, he can see the argument for combining the AFB with AMI.
“Effectively second charge and first charge brokers are going to be operating under the same regulation in 2016 and it would make sense to have one umbrella organisation,” he says.
But he adds: “It’s nice to have the AFB and it would be good to see its identity maintained but under a greater organisation such as AMI.”
Barney Drake, director at the Y3S Group, says the industry – lenders and brokers – already meet on an informal basis to discuss the market and that he considers this to be very beneficial.
“The industry needs a body of people that meet together regularly to discuss the changing market,” he says.
Drake says Fluent Money has organised such meetings on a number of occasions and it is useful to get the lenders involved.
“Lenders often have extra resources that we don’t, such as internal lawyers, and it is good to get them involved in the meetings,” he says.
Drake thinks it is good to have the formal aspect of the AFB but it would not make sense to merge it with AMI right now.
“A merger would make sense around 2016 when the European Mortgage Directive kicks in and first and second charges are seen as the same. I don’t think now is the right time. At this stage the industry needs to work together and communicate in order to work through any issues we have,” he says.
For second charge lenders, the FLA has always lobbied on their behalf and worked closely with the AFB. The two trade organisations are currently jointly hosting workshops and seminars for the second charge industry to help them in their understanding of the new regulator.
As the sector evolves however, new lenders from other markets are entering; some of which may have no desire to join another trade organisation and will look to their current one – the CML – to represent their needs.
Precise Mortgages, predominately a first charge mortgage lender, entered the second charge mortgage market late last year.
Alan Cleary, managing director of Precise, says for them it is a matter of cost.
“I’m already a member of too many trade bodies and it is expensive for lenders. Second charge mortgages and first charges are all going to come under the same regulation so it makes sense that the CML covers it.
“It is my expectation that the CML will represent me as a lender on all aspects of the residential mortgage market,” he adds.
A spokesman for the CML says if a second charge firm has all the correct lending credentials, permits and the appetite to join the CML, then it would be eligible to do so.
“We would expect to adopt a more active role in ensuring that any read-across between the first charge mortgage market and other secured lending is coherent and rational, and to work with regulators and members towards those objectives,” a spokesman says.
“However, at this stage the future scope and form of FCA regulation of the second charge market is evolving – we would expect our own services to evolve in line with these changes to reflect what our members want.”
A spokeswoman for the FLA says it has no plans to stop representing the industry or change what it is currently doing.
The trade body also appears to have the full support of its members.
“The FLA does a very good job at representing the second charge industry,” says Robert Owen, chief executive of Central Trust. “In Fiona Hoyle who is head of the secured lending section, it has a very professional person with a deep understanding of how the industry operates,” he adds.
The first and second charge mortgage markets are fortunate in that they have trade organisations that are willing to work together. As the markets become more closely aligned, it makes sense for the sectors and trade associations to increase communication.
For lender trade bodies, this communication is going to be key in order to avoid duplication of work or conflicting agendas. From the perspective of brokers; if they want to keep their own identity in the form of the AFB, then the industry needs to put its weight behind the trade body to ensure its survival.