The Mortgage Credit Directive (MCD), in place since 21 March this year, has opened up the second charge market leading to increased competitiveness, quicker turnaround times and greater protections for consumers.
The new regulation which brought the regulation of seconds in line with firsts means that for brokers to remain independent they need to include second-charge as a service. However, for those not wishing to take on the responsibility for advising on seconds their customers can still stand to benefit. For example, the new rules have helped improved the customer journey by removing some of the outdated customer protections, such as the 16 day cooling off period.
Previously any material change in the second charge offer, such as a change to the loan amount or lower than expected property valuations meant that the borrower had to go through a further onerous cooling off period, this was detrimental to those borrowers who were looking to meet specific deadlines to release capital from their property.
We believe these changes now place second charge mortgages in a position to rival both bridging loans and remortgaging where speed is the driving factor. As a Solicitor is not required in the vast majority of second charge transactions, not only does this speed up the process considerably, in many instances it will be quicker than remortgaging and bridging, as well as mitigating substantial legal costs often associated with bridging finance.
In order for customers to get the best deal, whether that is a remortgage or a second charge, remains unchanged. Mortgage intermediaries are not obliged to offer second charges to their clients, although they will need to make their clients aware that a second charge might be a more appropriate method of capital raising. However, the alignment of regulation provides some really compelling reasons for professional mortgage advisers to include seconds within their proposition which may include outsourcing the advice to a second charge specialist.
The benefits for the second-charge mortgage sector are already plain to see, including fewer legal costs than short tem finance such as bridging. Across the industry we are seeing some second charge mortgages complete within a matter of days once a recommendation has been made to the borrower.
Overall, we believe the alignment of regulation for first and second charge markets delivers
huge opportunities and innovation to the market allowing advisers to provide better customer outcomes. Increased innovation and a quicker turnaround of applications can only be a positive for consumers – and of course, the increased protection in place is a benefit that speaks for itself.