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

Change for everyone

By Paul Woodworth Managing Director of Gateway2Finance |

 As an industry, the second charge mortgage market has seen a great deal of change over the past few years.


The regulatory move from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA), the implementation of the Mortgage Market Review (MMR), which was then followed by the Mortgage Credit Directive (MCD), which resulted in the products moving from the FCA’s Consumer Credit rules to the Mortgage Conduct of Business, have certainly had their challenges.

Greater customer choice and easier access

These changes have propelled the second charge market to a position whereby the customer now has greater access to a broader range of financial service products offered on an advisory basis. To achieve this, both lender and master brokers have invested heavily in the development of new systems to support the process changes and, of course, people, as the majority of advisers now hold a professional industry qualification. Packagers who have historically operated only in the first mortgage market are now also promoting the benefits of a second charges as part of their proposition.

This is only the start of the journey. I’m sure that as the industry gains momentum, we will see a broader range of products, enhanced system integration between brokers, packagers and lenders. Product sourcing tools will become more robust, providing mortgage advisers with access to accurate information they can trust with regards to the products available and the providers. We are beginning to see an increasing number of mortgage advisers switching on to the benefits of the product and how it can add value to their own portfolio. 

Time to embrace the changes

There are, however, still a large number of mortgage advisers who have not yet embraced the changes. I still often find when attending industry expos and presentations the same old boring misconceptions about second charges being voiced. Those who think that these products apply only to clients who have a poor credit history or are to be used as a last resort should think again because dismissing these products may cost you dearly in the future.

Opportunities missed…

If a homeowner with a mortgage is looking to raise funds and the first charge lender cannot help or a remortgage is not in their best interest for any number of reasons, then a second charge mortgage is in many cases the most viable option. All master brokers can provide similar examples, but as awareness grows, the consequences of not looking at a second charge could be even more damaging.

A case in point

A good example of this occurred recently when we received an enquiry from a customer who was looking to finance the purchase of land that had become available adjacent to his property. The property is valued in excess of £2.5m with a £700,000 mortgage and the client was concerned about a situation arising whereby a new purchaser may acquire planning permissions. The first mortgage lender would not consider a further advance due to loan purpose, affordability was not an issue.

The customer’s mortgage adviser had discounted a second charge as “he didn’t like them”, he “hadn’t used them before” and “considered the product to be inappropriate for his high-net-worth client”. He provided his client with options that included waiting 15 months in order to remortgage once early repayment charges had expired, pay the heavy redemption charges and even discussed withdrawing funds from the client’s pension. None of these solutions appeared viable to the client as he felt he would be in a position to repay the full amount within the next two years.

Happy ending 

The customer is very happy at being offered a second charge mortgage at a rate below 5%. The issue here though is that the mortgage adviser had dismissed this option based on his own misconceptions, not the customer’s needs. The adviser currently looks after all of his client’s financial affairs, including life protection, pensions and other finance matters as various projects arise.

I think you can guess how this will end for the financial adviser!

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