Second charge watch: full of oblivion


You might be able to go back, but I would be surprised if you remember exactly what you were doing on March 21, 2016.

This date, however, was momentous for the entire mortgage market – and in particular for advisers, as it saw the introduction of the Mortgage Credit Directive (MCD) into UK financial services regulation, which has essentially leveled the playing field between first and second mortgages.

It may seem strange that I am referring to a directive that has been part of our environment for over five years and that you might assume that it has been fully incorporated into “business as normal” by advisers. But the latter is not necessarily the case.

As a community we have had a lot of time to put this into practice

For example, among a number of other changes, the MCD initiated the new advisor’s regulatory responsibility that every potential remortgage or additional advance client should be informed that a second mortgage might be a viable alternative. A fairly straightforward process, you can assume, and which, if you think about it, should mean that a significant number of borrowers have been counseled and referred in seconds as an alternative to what might be considered the more product recommendation route. “Traditional”.

However, more than five years later – and as a master broker specializing in the seconds market – we can say with certainty that a minority of advisers still do not. You can assume that each advisor will have placed at least one second mortgage client during this time. But we deal with a small number of advisers who, when you ask how many second loads they’ve done, always say, “Never did. “

Of course, they may be able to provide the regulator with evidence to support a remortgage or other prior recommendation. But can they really say that no customer during that time deserved a second charge?

Missing?

If this is the case, this may lead us and the regulator to wonder if this advisor’s cohort of clients does not have access to what could be an alternative product that is more suitable and better meets their needs and requirements. . Not to mention the additional income that might be available to their business if the advisor actively puts the second charge option in front of clients.

The first step is to make customers aware that their options extend to seconds

Right now, homeowners would be hard pressed to be unaware of the ultra-competitive first-charge mortgage market. They might be considering very low rates in the market and, together with their need to access equity in their homes, might think this was a ripe market for the pick.

However, as an advisor, you will know full well that the “general interest rates” offered are out of reach for a significant number of homeowners, for several reasons: income / affordability does not match, they are out of reach. loan-to-value, they have a number of years left on their current contract with significant fees attached … the list goes on.

The MCD essentially leveled the playing field between first and second mortgages

And yet, this loan requirement remains. And this is exactly the kind of situation that the CDM was brought in to deal with. For the customers listed above, are they offered the second charging alternative? Or are the advisors just trying to get a new mortgage or other advance arrangements that might end up costing more?

Let’s not forget that side charges can be used to fund any legal purpose – tax bills, tuition, debt consolidation, home renovations, to provide a deposit for a property for rent, etc. The only exception is to pay off gambling debts.

Pink Pig recently handled a claim for a client to raise £ 250,000 for a combination of home improvement (£ 195,000) and debt consolidation (£ 55,000). Their existing mortgage was with Barclays, which did not give the additional advance due to multiple income issues; Additionally, a remortgage would have come with a prepayment charge (ERC) of £ 36,000 as the customer had a fixed rate until 2024.

We deal with a small number of advisers who, when you ask them how many second loads they’ve done, always say, “never done one”

We were able to proceed on six times the common income – standard in the second load industry – to get the product they needed. They were able to use the money as needed while still maintaining their first charge rate and avoiding ERC.

Undoubtedly, many more customers have these circumstances and requirements. But the first step is to make customers aware that their options extend to seconds and that in the end, it could be the much faster, more profitable mortgage available to get the money they want. need.

As a community we have had a lot of time to put this into practice and, for those who are not, the time for a change is now.

James Rainbird is Managing Director of Pink Pig Loans


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