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Do you expect to see less or more second charge mortgage lenders in 2018?

Don’t be afraid of debt consolidation

By Paul Woodworth, Managing Director of Gateway2Finance |

 It’s now six weeks since the implementation of the Mortgage Credit Directive (MCD) which brought second charge mortgage regulation within the scope of the Financial Conduct Authority’s mortgage rules.

This has resulted in significant changes in the way master brokers and second charge lenders operate and it has been no surprise that in the past week the FCA have begun to cast a more critical eye over the industry.

Last week in Leeds, Mary Blackwell of the FCA drew brokers attention to the advisory process and explained that the regulators review of advice since the Mortgage Market Review (MMR) had shown that many mortgage advisors were still not collecting sufficient information about clients’ needs and circumstances’ before advising on products. This in turn leads to a failure to offer suitable products and this was further emphasised when advising on debt consolidation.

In recent months, I have had many conversations with mortgage advisors with regards to second charge lending and how these products can add value to their proposition. 

One area that crops up time and time again is that of debt consolidation, and the nervousness around those who once provided advice but now feel that there is too much of a risk. 

So much so, that many are almost abstaining from advising this form of business altogether.

I fully understand the regulators view with regards to suitability but surely the aim cannot be to make life so difficult that advisors turn away from helping customers who find themselves in a position whereby they have become ‘over indebted’.

8.2 million people over indebted

The Money Advice Service (MAS) recently published figures suggesting that over eight million people in the UK are ‘over indebted ‘and struggling to stay on top of bills and credit repayments.

The MAS report goes on to say that those with three or more children, the elderly and those on low incomes are the most likely to be over indebted; in other words, those who are more vulnerable.

We should not be afraid of debt consolidation 

As mortgage and second charge brokers we all receive enquiries from customers who will have an unsustainable amount of unsecured debt.  

There are many reasons as to how customers end up in this position and it is not always simply a matter of irresponsible borrowing or lending for that matter. 

Inevitably the customer is limited in choice as what they can do and by the fact that they are over indebted, cutting spending isn’t an option.

Contacting the various creditors may result in them extending the term of a loan over a slightly longer period or deferring payments but this is often not enough to provide a workable solution for the customer. 

In recent years many over indebted customers have fallen in to the hands of debt management companies.  

The regulators view of these firms is pretty clear to see, as so far not one commercial fee charging firm has obtained full debt management permissions. 

Either way, this will inevitably result in the customer having a poor credit profile for many years to come. 

Advisors should be there to help

I don’t think it is the regulators intention to create an environment where professionally qualified mortgage advisers switch off from dealing with vulnerable customers. 

The FCA has provided some guidance as to what should be recorded in such cases:

•    Can the client currently meet debts before the consolidation
•    Consider the full cost of the debt consolidation
•    Clear reasons as to why the product that was recommended,  was the most appropriate
•    Provide evidence of research

Customers looking to manage debts should be encouraged to seek advice and there’s no better place for them to get it than via qualified advisors. 

Once a customer seeking help has made that step then there must be additional solutions to simply ‘rescheduling their mortgage to a cheaper rate’. 

There is a major opportunity to provide help to over 8 million people, so we shouldn’t be turning our back on them. 

If as an industry we leave these customers believing that the only alternative is to google debt consolidation, let’s just see where that gets them….

Attributed to Paul Woodworth, Managing Director of Gateway2Finance 

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