As we all know, on the implementation of the Mortgage Credit Directive (MCD) next March the sale of regulated second charge loans will be governed by the MCOB rules. But what does this mean for customers? Well, quite simply, those wishing to take out a regulated second charge loan will be provided with advice and a recommendation just like in the first mortgage world.
Seasoned first charge mortgage intermediaries know their customers will turn to them because they value their professional opinion, knowledge, experience and advice and don’t want their customers to lose faith in their reputation by excluding a second charge product that could offer a better customer outcome.
While we have already seen more first charge mortgage intermediaries embracing the second charge product, the message we are receiving from some practitioners falls somewhere between knowing they have to do something, but not being totally sure on their scope of service post-MCD.
Some of the frequently asked questions and statements we hear include:
- Will I lose my ‘independence’ if I stick to first charge mortgages only?
- I don’t have time to acquire the know-how to advise on seconds.
- Why do I need to offer advice on seconds when I receive the same income for referring on to a master broker?
The new regime will clearly be a different environment for second charge mortgage brokers to work in, but the benefits of delivering this regulated advisory service are there for all to see. Currently, the customer is presented with a range of second charge loan options from which they have to make a choice, rather than (as is currently the case with regulated first charge mortgage advice) the delivery of a recommendation tailored to their hierarchy of needs, detailing a suitable and affordable product for that individual. The latter must clearly represent a more progressive and appealing option for the customer.
So, one option is for a first charge mortgage broker to refer their customer to a master broker like The Loans Engine and we will give the second charge loan advice. However a school of thought is emerging that the decision to absorb second charge loans into MCOB has delivered another far-reaching (perhaps unintended) consequence for many first charge mortgage intermediaries.
The inference is something like this:
- For a mortgage intermediary to be ‘independent’, they need to be whole of market;
- For an intermediary to be ‘whole of market’ they need to offer advice on a range of mortgages representative of the market;
- Under MCOB, second charge loans will be mortgages – there will be first charge loans and second charge loans, but they will all be mortgages;
- Therefore, to be ‘independent’ an intermediary will themselves need to offer advice on both first and second charge mortgages.
So, returning to the question ‘To advise or not to advise?’
If it’s important to a mortgage intermediary to be able to describe themselves as independent and whole of market, it certainly appears they will need to give unlimited mortgage advice themselves, including advice on second charge loans.
Picture this. A seasoned mortgage intermediary, utterly competent at giving mortgage advice, having the information and support to be able to contrast remortgage, further advance, second charge and unsecured loan options, and make a recommendation of a suitable product. Surely, this has to be a great customer outcome?
And this is where a master brokers like The Loans Engine can help in providing a mortgage intermediary with the accurate loan information they need to be able to deliver the second charge advice themselves, if they want to retain their independent status
But once the intermediary has compared the options and the advice has been delivered, what next? Well, the second charge market is a packaged market where the master brokers have the lender agencies. The master broker will arrange the valuation and collate any information required by the lender.
So, the emerging message to mortgage intermediaries seems to be, if you value whole of market independence, you will need to offer advice on second charge loans. But don’t be concerned. A good master broker will help you with reliable product information and full support, so that you can deliver the best outcome for your customers.