In sixth months’ time the second charge mortgage market will be brought in line with its first charge counterpart. After something of a soft launch for secured loan regulation since the Financial Services Authority took over responsibility of the sector from the Office of Fair Trading, from March 2016 there’ll be no excuses for those brokers not adhering to the regulator’s rule.
For mortgage brokers – particularly those who have not yet embraced the seconds sector – this will be somewhat daunting. Under FCA and subsequently Mortgage Credit Directive regulation, secured loans should be treated in an exactly the same way as first charges. For those brokers who’ve kept a safe distance from the second charge market thus far it’s going to mean some pretty big changes.
Loan Introducer spoke to a selection of experts, already operating in the second charge sector, to gather their key tips and advice to help steer mortgage brokers in the right direction.
Keep an open mind
Tony Salentino, director, Complete FS
With the full integration of second charge regulation with that of its first charge sibling approaching in 2016, brokers have both an opportunity and an obligation to see where a secured loan can help their clients.
Many brokers have either avoided or just ignored secured loans and I would urge every adviser to start afresh with an open mind and look to understand where a secured loan can fit into their advice matrix for clients looking to raise capital secured against their property.
Take the time to assimilate the pros and cons as one would for any new product. If you already use a packager/ distributor for your more specialist borrowing needs, then look to use them to sound out the possibilities. The FCA expects brokers to make clients aware of secured loans in relation to capital raising and ensuring that clients have access to remortgaging alternatives is no longer an option.
Find a partner you trust
Paul McGerrigan, chief executive, Loan.co.uk
Find a secured loan company that you trust which is filled with people who know secured loans.
Look for a broker with real depth of knowledge, experience and an understanding not only of the current secured loans market but also of the market when it was much larger and with experience in wider financial services.
Ideally a secured loan broker will have direct experience of what it is to give mortgage advice and, from a position of experience, will actively help you with training, provide you with real case studies, work with you to ensure all compliance needs are met, and be on hand to answer questions as and when they arise.
It is also important that the company you choose realises that secured loans are not your core product, and takes on the responsibility to do the hard work and treat your customer in the way you would expect.
A good secured loan company will understand that the client is yours and the service they provide is an extension of your company and your brand. A responsibility that should not be taken lightly.
Maeve Ward, sales and operations director, secured lending, Shawbrook Bank
Brokers should embrace the change and start implementing some of the changes now so that they are ready for trading as usual on March 21. This will ensure that there is minimal disruption and provide a seamless customer journey. Shawbrook has been supporting brokers with the changes, launching academies and engaging the support of Simply Biz to guide them through the application process, as well as assisting them with understanding the rules and how they operate in practice within their business. What is refreshing is the receptiveness of the brokers to change, everyone is onboard, recognising that the new regime paves the way for greater consumer protection.
Take time to understand the market
Bradley Moore, Brightstar director of second charge loans.
Seek to understand the options available or someone else will! This may seem to be the most basic advice but we know that many mortgage brokers are yet to fully embrace the second charge market.
The benefits are obvious but clearly not so if you do not know what is out there and how you obtain it for your client when the chances are someone else will know and you may lose the business. Worse, the client may use the internet, find the solution themselves and then question why it wasn’t offered.
For those that take the time to look into second charge for their clients they can report back with confidence all the possible options, explain the benefits and, ultimately, provide the peace of mind I am sure any advisor seeks; that the advice they are giving is going to give the customer the best possible outcome.
If you do not understand or investigate this option on behalf of your client then how do you know that it wasn’t the better option?
Make sure you’re fully regulated
Tim Wheeldon, joint managing director, Fluent
Make sure that business is fully regulated by the FCA when full regulation comes in March 2016 or will be by that time. This keeps both you and your client safe.
Make sure that firm takes full responsibility for the advice given to your client in relation to a secured loan choice. It is vital to know where you stand in the event of a complaint.
Engage a specialist second charge distributor with access to a whole of market lender panel, saving you time and ensuring you get the best advice.
Finally get a break down of all charges from your choice of partner. Some distributors charge higher client fees that others and may also charge hidden packaging fees.
Be realistic when choosing a partner – if it sounds too good to be true, it probably is.
Steve Walker, managing director, Promise Solutions
Don’t be afraid of getting involved in secured loans. Just ensure you partner with a firm which has the right culture, processes and products to ensure that your clients always end up with a suitable product which can be demonstrated through robust systems and controls ensuring you and your business can’t suffer any detriment through poor practise.
It’s difficult to do this because it’s very easy for a firm to sound like they’re doing the right thing, it’s very easy to spin it. For a broker, it’s difficult to phone up a firm and gauge their approach through conversation. By dealing with them and giving them a try you’ll get a feel for it but you need to be objective and critical and ask yourself ‘Is this a firm I’m going to partner with for a long time or am I just doing one deal?’. If you’re doing one deal it’s tempting to take a chance but, in the long term, you can’t afford to do that. You’ve got to carefully assess the firm you’re dealing with, look at the paper work they send to you, look at the questions they ask. If it all seems too simple, we all know it isn’t. In an FCA world there are hoops you have to jump through so if there are no hoops be concerned.
Make secured loans a habit
Harry Landy, director, Enterprise Finance
Intermediaries who don’t have much (or any) previous experience of introducing their clients to second charge mortgages should start to get into the habit of considering them when a borrower comes to them seeking to raise capital and is thinking of remortgaging or a further advance. In such situations, it’s worth speaking to a second charge mortgage broker and obtaining an illustration document to compare a remortgage or further advance and observing how the products compare and contrast and establishing whether a second charge mortgage may actually be the most suitable option, especially when rates start from just 4.4%. March 2016 may seem far away, but it will soon swing round, so the sooner brokers get into the habit of considering second charge mortgages, the better prepared they will be for the new regulatory regime.