Loan Introducer September 2019

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September 2019

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P26 PAUL STRINGER: On the industry and plans for the future

Champion of the loans professional

Second chances The current state of the second charge market

ROBERT SINCLAIR THE OUTLAW: GODFATHER PART II SECOND CHARGE IN-DEPTH INDUSTRY COMMENT

HoF : TEQUILA SUICIDE ROUND-TABLE

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Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com

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Comment

September 2019 www.loanintroducer.com

The sector is moving on up The second charge market recorded a yearly increase of 23% in value in May from the previous year, with the amount of new lending recorded at over £100m twice in 2019 according to figures by the Finance and Leasing Association (FLA).

Quarterly lending in the three months to May rose by 26% in volume compared to the same period in 2018 and the number of agreements increased by 16%.

Steady increases have been seen throughout the year, and Fiona Hoyle, head of consumer and mortgage finance at the FLA claimed that the market was maintaining its ‘buoyancy’.

Despite these promising figures, the industry is calling out for increased education so that this market is utilised fully.

Despite there beginning to be a shift of brokers sending second charge business in and more sending the message that seconds are viable option when remortgaging, there is still some way to go.

There continues to be myths surrounding the industry and confusion over increased regulation which much of the industry are keen to clarify in the next 12 months.

The latter part of 2019 is set to be an interesting one thanks to the Brexit deadline fast approaching on October 31.

Despite a strong summer recorded, it will remain to be seen whether increased hesitancy will affect the market, but after another 15% rise recorded in June it appears that consumer confidence has yet to be shaken.

The August ‘dip’ which usually affects the industry has been absent this year, so it may well be a case of ‘life goes on’.

It is a positive picture for a growing marketplace, and it will be interesting to see whether industry thoughts will play out in practice.

More rises are on the horizon as the market gains momentum, so watch this space.

FINDINGTHERIGHTFIT...

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4 Feature

Natalie Thomas looks at the North and South divide in the second charge market and the extent of its impact

10 Interview

Jessica Nangle caught up with Paul Stringer of Norton Finance, to discuss the past 12 months and the second charge industry

14 Steve Walker

Second charges are only part of the solution

15 Helen Marshall Lending is no longer linear

16 Martin Stewart

Maybe it’s not the climate changing, but the way we work?

17 Richard Tugwell

Opportunities are still there for brokers and customers

18 Round-table

Our experts discuss the state of the second charge market

26 Damian Cain

Considering seconds

Callourteamon01709321665 www.nortonbrokerservices.co.uk

THIS INFORMATION IS FOR INTERMEDIARIES ONLY AND SHOULD NOT BE DISTRIBUTED TO POTENTIAL BORROWERS.

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The North South divide Natalie Thomas looks at the well documented North and South divide in the second charge market and the extent of its impact

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he UK’s North/South divide is well-documented but does it have any bearing on the second charge mortgage market?

Are northerners pondering a second charge over their chips and gravy, or is it southerners who are more likely to consider a second charge whilst munching their Cornish pasty?

The North of England has proven to be one of the most resilient segments of the housing market over the past 12 months and whilst growth in parts of the southern mortgage and property markets has slowed, the North’s has gained pace.

According to UK finance, there were 84,900 first-time buyers in the North of England in 2018, up 3% on 2017 and the highest level since 2006.

Overall, the North of England saw greater growth in FTBs than anywhere else in England outside the Midlands. This, the trade body says reflects better affordability in regions of the North, with average deposits and income multiples lower than elsewhere in England.

It is not just FTBs where the North of England is experiencing a boost but homemovers as well. Last year saw 80,400 homemovers in the North - a 1.1% increase on 2017 and the highest level since 2007.

So, what does this mean for the future demand of second charges across the UK?

Northern value A little can go a long way up North and second charges are a popular option for many homeowners who are looking to carry out home improvements.

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We do see slightly more applications for refurbishment and home improvement up north,” says Joseph Aston, national sales manager at Vantage Finance.

“A light renovation can significantly impact property values in the north, or a landlord’s rental value.

"Buy-to-let second charges are therefore more common in the north where the high yielding market is attracting professional landlords from all over the country.”

BTL business in the North has bucked the national downward trend, with Northern cities Newcastle, Liverpool and Hull seeing strong BTL growth, according to UK Finance. This it says has been driven by lower house prices coupled with a healthy labour market and strong rental demand, meaning landlords can achieve higher yields in the north than the UK average.

In the Northern Powerhouse cities of Hull and Liverpool, gross yields are approaching 8%, according to UK Finance, while BTL growth in most other cities and regions of the UK is declining.

Lending in the North is not without its issues however. Jo Breeden, managing director of Crystal Finance, says the lack of equity in a borrower’s property can present a problem.

According to Zoopla, seven cities in northern regions posted annual gains of more than 4% in the year to June 2019.

Nevertheless, equity can be minimal in the north, compared to some of their southern counterparts, says Breeden. “Borrowers need some equity to play with and clients which are able to borrower at lower LTVs are able to get the best rates. “For a larger second charge there would need to be enough equity in the property,” he says. “I wouldn’t say this necessarily makes it any tougher to lend up North, it’s just a simple game of equity.”

Second charge without borders As a prominent second charge buy-to-let deposits, business mortgage distributor based use, tax bills and low a current in Scotland, we have seen a low rate on a first mortgage all 32% increase in second charge proving popular reasons for a lending volumes in the sevensecond charge on both sides of month period to the end July the border.

– compared to what was also Overall, I don’t see there being Alistair Ewing a strong performance in the much differential between the managing same period last year.

Scottish and English markets. director, While we have yet to see One very big advantage however the Lending the July figures for the wider is that consent to register a secChannel industry, we will likely remain ond charge in Scotland is never ahead of the market which was required as there are no restricshowing 19% growth at the end of June tions at Land Registry. This of course not with an overall £603m of total lending. only speeds up the application process Our pipeline remains strong and is now but also means that we don’t lose deals if pretty consistent, demonstrating continconsent is declined. ued healthy demand for second charges We virtually have a full lending panel up in Scotland. here, with just Precise Mortgages standSome 85% of our second charge ing out as the only mainstream lender not volume comes from Scotland and while offering second charge products in Scotmost of this is still introduced by broland. In addition, there are a number of kers; our direct-to-consumer offering is lenders including Masthaven and United beginning to gather momentum. Broadly Trust Bank who have minimum valuations speaking, geography doesn’t appear to of £100,000 which is quite restrictive in have much of a bearing in relation to the many parts of Scotland where valuations loan purpose, with debt consolidation, are just naturally lower.

Mind the gap

London might be the social and economic hub of the UK but is

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it also the centre of the second charge world?

One advantage that London and the South East in particular hold over their Northern neighbours is the historic rise in equity some borrowers in these regions have experienced The average house price in London in 2011 was just shy of £300,000 according to Zoopla but now stands at over £450,000.

In contrast the average house price in Newcastle was around £115,000 in 2011 and is now just over £125,000.

Matt Cottle, chief executive officer at the Specialist Mortgage Group, believes those that live in the SE see their property more as a ‘money box’ than those elsewhere in the country.

“This means people in the south are pulling money out of their property all of the time,” he says.

Cottle says despite being based in Cardiff, it does less than 2% of its business in Wales and

55% of its business comes from London, the home counties and the M4 corridor. “We operate nationwide but the amount of equity and the concentration of people in London and the South East mean the vast majority of our business comes from these regions,” he says.

Whilst it does do a lot of business in northern cities such as Manchester, Leeds and Newcastle – London and the SE is where the bigger loan sizes are, he adds.“Our average loan advance is just over £80,000 in London and the SE but just under £50,000 elsewhere,” he says.

Breeden agrees that second charge loan sizes are typically larger in the SE. “Some of the biggest deals that we have completed this year have all been based in the SE, which comes down to higher incomes and equity,” he says.

The start of the year saw homemover mortgages fall by 

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3.7% in the capital, compared to Q1 2018, according to UK Finance.

A lack of movement in the market however has been interpreted by some as a positive for the second charge market.

Harry Landy, managing director of Enterprise Finance, says it tends to see greater demand for home improvement purposes in the south of the country. “This is being led by the property prices in this region making it harder for people to climb the property ladder, so they opt instead to expand their existing home,” he says.

“Home improvements are growing nationwide though as Stamp Duty and associated costs can make an extension a much better option than moving,” he adds.

Landy says it is also seeing growth in second charge mortgages against BTL properties in the south.

National trends Cottle has observed some differing characteristics between northern and southern clients.

“Londoners move faster,” he says. “When it comes to processing the loan, they want it now, they want it yesterday; whereas clients up north can be somewhat more hesitant.”

Around 70% plus of its business is made up of home improvements, which he says is a national trend but can be more prevalent in some regions.

“As you go further up the country and further to the West it’s more about home improvements and less about debt consolidation,” he says.

This differs from Landy who says debt consolidation is its “number one reason for second charge mortgages in the North.”

Marie Grundy, sales director of West One Loans, says debt consolidation remains a popular reason nationally for second charges and there is also strong demand for home improvement loans, which is being fuelled by the uncertainty of property prices.

It sees particularly strong de-

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mand from London and the South East for second charges but the overall percentage of borrowing in these areas is gradually reducing she says as a result of stronger regional growth from other parts of the UK including the Midlands, the North West, Scotland and Wales.

“House pricing differentiators will be a key driver of this, but it is great to see regional diversity increasing across loan completions,” she says.

Northern Ireland So, are there any regions that are off limits when it comes to second charges? Northern Ireland was a much-publicised casualty of the financial crash of the mid-2000s and more so than any other part of the UK suffered a catastrophic decline in house prices.

House prices in NI have seen drops of over 50% in every region from peak to trough, compared to around 13% for the rest of the UK, according to UK Finance.

The trade body says prices in NI have recovered quite significantly since then but are still some 30% off the peak levels – all of which

doesn’t bode well for a buoyant second charge market.

From 2006 to 2009 FTB numbers in NI more than halved, whilst homemover numbers fell by nearly three quarters and remortgaging by two thirds.

Breeden says it has just one lender on panel which will lend in NI and while it does receive enquiries, equity is always an issue.

“There is quite a big suppression left on the house prices there following the house price crash and a lot of borrowers are still mortgage prisoners,” he says.

“There is definitely demand there but when we run the numbers it often isn’t feasible,” he adds.

Across the border Another country which presents its own set of problems is Scotland, which is currently experiencing a very polarised market.

Edinburgh saw the strongest growth of any UK city in the year to June 2019, according to Zoopla, with prices rising by 5.1%. In contrast, Aberdeen saw a 3.2% drop in house prices during the same period. 

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“House prices in NI and to some extent Scotland look set to limit demand for second charges for now. As house prices creep up in central northern cities, so too should demand in these regions” The country has enjoyed a buoyant mortgage market over the last 12 months however. There were 9,160 FTB mortgages completed in Scotland in Q2 2019 - 3.5 % more than in the same quarter in 2018 and the highest volume of FTBs since Q2 2017. Additionally, there were 9,290 new homemover mortgages completed in Q2 2019, 6.4% more than in the same quarter in 2018.

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While homeowner remortgages saw a 15.3% increase in Q2 2019, compared to Q2 2018.

Breeden however believes Scottish borrowers often prefer to use a local Scottish business.

“Local Scottish businesses tend to have a bit more of a stranglehold on Scotland,” he says. “Maybe if I spoke with a Scottish accent we may get a bit more business,” he jokes.

While Cottle says location can also act as a deterrent.

“We do a little bit of business in Scotland but the principle reason for us not doing more is that we visit each of our clients,” he says, which can make locations such as Scotland a bit more challenging for the Welsh based business.

Robert Sinclair, chief executive officer of the Association of Mortgage Intermediaries, believes the differing legal system in Scotland might present a problem for some firms but he suspects the bigger issue is around LTVs and property price escalation.

“There are areas in Scotland where there has not been much

house price inflation,” he says.

“Outside of Aberdeen and Edinburgh, house price inflation over the past decade has been fairly stagnant, so if you are lending in that market you are always going to be up against it in terms of LTV. “Whereas in other parts of the country we’ve seen much greater house price inflation so you are not up against it quite so much,” he adds.

House prices in NI and to some extent Scotland look set to limit demand for second charges for now, with the bigger prospect for growth coming from more northern regions of the UK. As house prices creep up in central Northern cities, so too should demand in these regions. Schemes such as the government’s ‘Northern Powerhouse’ should hopefully continue to boost the economy and subsequently the housing markets in such regions, which means the gap between the North and South should close in terms of demand, making the outlook for second charge demand up north anything but grim. 

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Keeping with the times Jessica Nangle caught up with Paul Stringer, director of Norton Finance, to discuss the past 12 months, the second charge industry and plans for the future Like the political chaos surrounding Brexit, the fees debate in the second charge market shows no signs of going away.

Ever since the Mortgage Credit Directive came into play, effectively moving seconds in line with their first charge counterparts, questions have been raised over whether the fees charged by masterbrokers are justifiable.

How have the past 12 months been?

The past 12 months have been good. We have consistently grown volumes over the last several years to highest level for a decade both on the broking and lending side.

We’ve added another in-house lender to our panel, as we are constantly reviewing our whole of market secured and unsecured lenders.

We tend to outperform the industry to some extent in that the latest FLA figures are showing 20 – 25% growth in second charge volumes; we are in fact seeing 30 – 35% growth which is down to the service we provide brokers and the experience that we have.

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The introducing side is growing faster than the B2C side at the moment for a variety of reasons.

We have an affinity relationship with a network which is helping grow the B2B side, but generally I think there is a greater awareness amongst B2B brokers that secured loans can be a better option. The first charge market is worth £268bn so just a small percentage of that would be great for us!

What challenges have you faced in the last 12 months and how have you overcome them?

We had a visit from the FCA recently, which was a successful visit. They looked at our processes in detail and the way we underwrite cases. We had an email confirming sign off shortly after which was great. That was one key challenge we have recently faced. The other challenge has been keeping up with the competition.

We know that the second charge industry is very competitive at the moment – as a lender and a broker we have constant pressure from competitors trying to take our market share so the challenge

SEPTEMBER 2019

“It is important to highlight where second charges are appropriate – we know there are certain circumstances where it is better to do a second charge than a remortgage” is to keep our products up to date as a lender, keep our rates competitive, keep increasing maximum loan sizes and enhancing criteria. On the broking side, we have to ensure that we are offering a service to our introducers which matches their expectations.

We are constantly trying to enhance our processes to ensure that packagers or introducers use us rather than other brokers.

How do you feel that you stand out?

The service that we offer sets us apart. We know that brokers need to

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Paul Stringer, director, Norton Finance

know how the application is going and that it is being dealt with in an efficient manner.

We have a dedicated team dealing with introducer brokers so they are dealing with the same people throughout the process which is something we really focus on.

I think that is what it is all about – if we maintain the service levels that we are currently maintaining we can grow the brokerage as we are keeping the existing introducers happy and an additional introducer is just additional volume.

I think it is important to highlight

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to an introducer where second charges are appropriate – we know there are certain circumstances where it is better to do a second charge than a remortgage which is now becoming more prevalent than ever.

How important do you think education is in the sector?

I think it is very important. We are trying to increase this internally at the moment with our loan introducers and trying to get the message out that second charges are often are often a more viable

option than a first charge.

The tradition is that second charge has been for customers that don’t have a great credit history which is still is the case to some extent as we are able to help customers who have had a poor credit history in the past, but that is the traditional reputation and there are so many other areas where second charge is a better option – even for prime customers.

The industry is making progress and is trying to change that initial reputation. Rates are lower which makes a difference SEPTEMBER 2019

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to the offer which we provide to customers.

The important thing for any broker to take into account is that if there is an ERC in place, even if the rate is slightly higher with the first mortgagee, it is often better to do a second charge than have a customer pay the ERC. What is your view on the current state of the second charge market?

The current state is improving year-by-year, but it could be a lot bigger than what it is currently. I think it will get bigger in terms of volume in years to come which is an important message to get across that we are growing as an industry but we would like to grow faster.

I think the potential for growth is there as long as the first-charge market switches on to offering seconds as an alternative.

In regards to the specialist market, we are focussing heavily on commercial.

We have a commercial specialist within the company who has access to a large panel of commercial lenders looking to find a home for all of the commercial applications that we receive.

We have identified this as a growth area, and we are now getting a decent number of completions every month from both the introducers and B2C side.

Bridging, buy-to-let and equity release are also areas of growth for us. I think equity release will continue to see the large growth it has seen at a similar pace, as there is a growing population at that age group but also the awareness of that product is growing which in time will hopefully double volumes year-by-year.

I think one area that is important for the second charge industry is engagement with sourcing systems.

All sourcing systems now have second charge products, although traditionally brokers had to search for those products. However sourcing systems are beginning

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to add second charge automatically to the new mortgage offer, this will help mortgage brokers identify when a second charge is a more appropriate offer.

Are you observing any trends in the marketplace?

There tends to be more prime at the moment which could be because first charge brokers are beginning to see second charges as a viable option for prime customers so I would definitely say that we are seeing more prime customers than we were.

Not just prime consolidation but also prime purchases and home improvements.

We are also seeing a shift in criteria – a number of lenders now are offering higher LTV products.

This is definitely an area where second charge lenders have recognised that for customers wanting to borrow at the higher LTV, a remortgage can be a higher rate so are trying to offer competitive products for that higher LTV range. I think that is a major trend which will continue as the market develops.

“Sourcing systems are beginning to add second charge automatically to the new mortgage offer which will help mortgage brokers identify when a second charge is more appropriate” What are your thoughts on automation?

For us at Norton, we continue to advise customers offline. We think it is important for a specialist broker dealing with customers with individual circumstances to have that personal touch and we will continue to do so.

I do believe however that automation will continue to be of benefit to us and other brokers in terms of the process – we are currently developing a more technologically

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advanced journey where we offer open banking to customers so we are able to obtain third-party documents without having to have the customer forward them on to us.

That includes bank statements, utility bills and proof of residency.

We are also looking at esignatures to avoid documents having to be sent to the customer which I believe is another key area.

Automation is good to speed up the process of packaging, but not from day one as that human touch does add value.

You recently spoke about jargon-busting. How important is it for the industry to use simpler language?

We know from dealing with customers that the range of knowledge that the customer has differs quite dramatically from one to another.

Some understand the jargon that we use, whilst others don’t understand it at all. I think it is important that we simplify the language that we use to customers to make sure that the understanding

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is there in terms of advice and the process itself. We are big supporters of having a jargon-free sale!

Customers can sometimes be a bit embarrassed to ask the questions; thinking that they should understand the jargon. Unless we are volunteering information to them in an easy-to-understand, plain English way, then often they won’t question it and this could be detrimental in decision-making.

It is all about treating customers fairly.

How do you find recruiting talent? Is it a difficult process?

We are located five miles from Sheffield which does help. There are plenty of people who are capable of carrying out many of the jobs we have on offer. Even if they have experience in general financial services companies, they can be quite easily trained. We sometimes find it a challenge but we feel like we are meeting the challenge. To be an adviser you need a variety of skills; it is a complex role. Customer service skills, sales skills and empathy skills are

what we primarily look for when recruiting.

Has Brexit affected your business?

I can honestly say that there has been no impact. I think customers are getting a bit fed up of the process and are just getting on with their lives.

We did notice a few days of a slowdown around when the last deadline was extended but we don’t see any impact now whatsoever.

We are positive about the future. Despite what happens, whether it is a no deal or a deal is made, there will be a shortterm pain but I believe there will be some long-term gain from it in terms of reduced corporation tax and more effective regulation which allows businesses to thrive whilst still protecting the customer.

I think the Conservative party are focusing on those areas to ensure that any impact is minimised.

What have you got planned for the next 12 months?

Along with e-signatures and open banking, we are looking to develop an app where customers can receive updates about their case and the latest rates.

We are always looking at improving our rates and products, we recently increased our maximum loan size to £250,000 on our lending product and we will continue to make changes quarterly.

We know that it is a competitive market so we are always enhancing and improving our products every few months.

As a broker we are planning more marketing as we believe it is the right time to expand and offer our products to more customers.

On the B2B side, we are looking at getting more resources on the road to visit brokers and promote our products and USPs. The groundwork has been done – the products and service are there – we just need to get the message out now. 

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Second charges are only part of the solution I could bang on about how great seconds are and quote low rates, lower fees and zero ERC’s to get your attention. I could tell you all about the compliance risks and detriment to your clients if you don’t deal with seconds appropriately.

I could preach that by not offering seconds, brokers risk losing their clients to other brokers who then churn the protection products and hoover up the future business. However for some brokers, they are still a last resort.

It is mathematically obvious that a second charge often works out cheaper overall than remortgaging if the remortgage circumstances force borrowers to accept a higher rate.

This may be due to a change in their income or credit profile; running the numbers to compare taking all the borrowings to a higher rate versus a higher rate on just the extra borrowings confirm it one way or another.

But if we are honest, we know that the second charge won’t sometimes be offered because it is either perceived as more hassle or it is not the broker’s area of expertise.

So little has changed for many brokers since pre-MCD, with seconds still viewed as a product of last resort which occasionally may be referred to a third party if the case can’t be placed as a first charge That being the case, I thought I would share a few scenarios which have hit our loan desk in the last few days where a deal was never going to happen without the intervention of a second charge expert.

The common theme we see is there is normally more than one problem to solve and that seconds are often a means to an end, such as consolidating credit with an eye on a remortgage later, capital raising to unlock a business opportunity, or to solve an unrelated problem.

A simple request for a home im-

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Steve Walker managing director, Promise Solutions

SEPTEMBER 2019

provement loan is not the norm, with most second charges having some underlying complexity and often being identified after a more expansive conversation between the borrower and a specialist lending expert.

Commercial finance restructure

We had a case where our client wanted to restructure expensive unsecured company debt.

The high street commercial lenders were not forthcoming with the rates we wanted due to certain trading problems and missed payments following a firm going under, owing our clients business £50,000. We arranged a £150,000 personal secured loan at under 4%, allowing our client to inject capital into his business both cheaply and effectively.

Avoiding bankruptcy/ repossession from personal tax bill and recent default

Our client was a high earner in the city, however was five weeks away from repossession proceedings if he couldn’t raise over £150,000 to pay HMRC. However, with a £20,000 default this year it was a problem.

Our solution was a £177,000 second charge to settle both the tax bill and the default. This was long-term to keep the repayments low but with no ERC’s, so the facility could be remortgaged at lower rates as soon as possible - potentially within 12 months.

Tax bill and credit repair

Tax seems to be a bit of a theme and this client wanted to settle a debt management plan, pay an urgent tax bill and repay an expensive unsecured loan. Again, credit repair was the plan and with an £80,000 loan at 6% with no ERC’s, our client was well placed to remortgage at competitive rates in a years’ time.

“We know that the second charge won’t sometimes be offered because it is either perceived as more hassle or it is not the broker’s area of expertise” To fund a devlopment project This client wanted to purchase a number of BTL’s all of which offered the potential to split the title and build on plots in the garden.

Second charges against the clients’ main residence and other BTL’s allowed us to go to higher LTV’s than bridging or development finance, releasing vital working capital for the build. We get many enquiries from brokers for a specialist product which they plan to sell/offer to their clients using Promise as a packager and source of expertise.

But looking through one window at one product does the borrowers a disservice. We get far more success by dealing with the client direct on the brokers behalf and bringing second charges in to play alongside commercial mortgages, business loans, development or BTL finance and delivering a holistic solution.

If brokers are yet to get to grips with second charges on a referral basis or giving advice themselves, getting into the habit of accepting and referring all types of specialist lending may help them see the real benefits of second charges as a part of generating and completing more specialist cases.

Get comfortable talking about seconds and they could easily become less misunderstood and more of a core product. www.loanintroducer.com

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Lending is no longer linear As our date for leaving the European Union edges ever closer, the UK’s economy is under the microscope.

This constant examination and analysis is undoubtedly having a continued effect on the UK property market – this could be in a good or bad way, depending on your views.

As such, mortgages and remortgages are a hot topic for both brokers and consumers, but that in itself isn’t always a positive.

As remortgaging is fast becoming high on the priority list, brokers may overlook the fact that a secured loan could be a better solution for their customers who are looking to raise extra money against their property. Recent FCA regulations are encouraging mortgage lenders to switch their customers on to a lender’s cheapest rate, if they are on a higher rate SVR mortgage.

This could mean that many customers would not benefit from remortgaging, as they are likely to always be given the best rates in the market by their existing lender, but not able to change their mortgage provider. Therefore, in this scenario a second charge loan could be a better option for the customer, as they are tied to their mortgage lender and it would also be considered best advice when compared with a full remortgage when ERCs are taken into account.

Helen Marshall B2B marketing manager, Norton Broker Services

If a customer has recently remortgaged, but is still looking for additional funds that their mortgage lender couldn’t cover, then a second charge could be the answer.

Norton Broker Services has a range of lenders on our secured lending panel that offer up to 100% LTV (and some offer options for loans above 100% LTV); meaning that even if a customer has recently remortgaged, they may still be able to borrow additional funds for anything from home improvements to a car purchase.

These lenders accept customers with varying amounts of adverse credit and have a flexible acceptance criteria, based on a rate for risk model; which could mean that if a customer is struggling to raise finance with high street lenders, our lenders may be a better option due to their circumstances.

In addition to this, a remortgage when the LTV on the property is high, is often more expensive for the customer than a lower LTV mortgage.

Therefore, a broker should seriously consider suggesting a second charge loan to their customer, as a second charge could be a cheaper option, rather than refinancing the whole mortgage debt onto a more expensive rate.

Our second charge rates start

from only 2.9%, so secured loans are often cheaper than some mortgages that customers may be offered. The increased competition in the secured loan market means that rates are continually reducing, which can only be of benefit to the customers looking at raising additional funds against their property, but are struggling to remortgage.

In addition to this, one of the lenders on our secured loan panel will consider lending up to £2.5m on referral, so secured loans aren’t limited to small amounts for the customers who are looking to raise money, but are concerned that they can only raise minimal amounts with a second charge.

Consumers’ finances are continuing to dominate headlines and Norton Broker Services believe the importance and relevance of second charge loans will continue to grow.

As secured loan lenders often offer a more flexible approach to lending, brokers need to consider the benefits of secured loans for customers who are looking to raise funds for a variety of purposes.

Along with consumers’ finances, employment is seemingly always in the headlines and continuing to change our economic landscape with zero-hours contracts, multiple incomes, pensions and benefits contributing to finances, lenders need to take these into consideration.

This is where customers struggle with finance on the high street, as traditional lenders don’t look kindly on these financial situations; however, lending isn’t as linear as it once was and secured loan lenders have realised this and have adapted their criteria accordingly.

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Maybe it’s not the climate changing, but the way we work?

Today it is getting harder to identify where the summer ends and the winter starts – not from a weather perspective, that’s easy, it rains all the time so we don’t really need to worry. No, I am thinking more from a business perspective where the lines have become blurred and have us reaching for the Gregorian calendar but only so we can put it in the bin.

Not too long ago you could pretty much set your sundial for the seasonal agenda - a build up to the Easter offensive, a slow decline toward the summer retreat, a renewed hope for the autumnal counter-attack and a final gentle stroll down toward the winter cease fire.

But not anymore. I can no longer identify those cycles and the Tuesday following a bank holiday now looks to be as busy as any Tuesday at any point throughout the year. Yes, we still get a lot of “out of office” emails in the summer and don’t even bother trying to book a compliance meeting in for the last two weeks of August.

But it does now feel that those quarterly cycles have become just one big cycle which starts at the beginning of January and runs all the way through to the end of December.

I don’t think it would be too much of a stretch in thinking to realise technology and a move toward flexible working are the main contributors to this. No-one ever totally switches off anymore and it is as easy to reach for your phone by the pool as it is the pina colada.

Couple that with the fact that the tech is now allowing us to avoid a lot of the heavy lifting thereby freeing up plenty of time to take more days off throughout the year. If you don’t believe me count the number of brokers regularly ‘networking’ by hitting a ball around a field! So, that 28-day holiday allowance is probably nearer 40 and maybe nearer 60 when you factor in all the ‘working from home’ days.

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Martin Stewart director, London Money

SEPTEMBER 2019

Collectively we have disrupted the romanticism of what seaside towns used to call the ‘Glasgow fortnight’, a concentrated migration of people going on holiday, and replaced it with a favourite quote of mine “work expands to fit the time allocated to it”. Basically, the workload is still the same but we are all dealing with it at different velocities and with different priorities and hence why it probably now feels busier all the time.

And boy is it busy. As I write this toward the end of the summer I look back and see that August was not only our busiest ever August, it was also our busiest ever month. The rest of the year doesn’t appear to be quieting down either. Perhaps we have subconsciously unchained the Brexit anchor and just getting on with life?

Let’s hope so and goodness knows we need to.

But let’s not put on the Ray Bans and relax just yet. There are a couple of trends which we need to be aware of and which could be warning signs that beneath the factor 50 not all is well within the economy.

Firstly, repossessions are on the rise as are CCJ’s and adverse credit.

This is concerning when you consider we are at record low interest rates which are unlikely to rise any time soon and record high levels of employment. What is really happening beneath the bonnet of the economy that is causing people to struggle? I would hazard a guess at too much easy debt feeding into a frenzied consumer led economy.

Secondly, we are witnessing a significant rise in second charge lending – up 20% I read recently. This is obviously fantastic news for what is a much-needed product. Maybe now the broker has bedded in their knowledge of what a second charge opportunity looks like. But behind this silver lining perhaps there is also a cloud? This month we have had two second charge mortgage enqui-

ries from high earning, blue chip clients who have simply got themselves in a mess – one with the taxman and the other one with their credit cards.

Both earn over £100kpa and qualify as being a professional. But they are, like so many people, asset rich and cash poor.

If their London house hadn’t risen in value as far as it has, allowing them to access much needed equity, then they both may now be in danger of losing their home.

If the more flexible second charge underwriting is on the rise at a time when first charge lending is taking a more cautious approach we should acknowledge that cross over for what it possibly is – a warning that incomes are being stretched uncomfortably by the cost of living.

When we all get back to the office and swap the parasol for the paperwork, the beach for the brolly and the budgie smugglers for the briefcase, let’s all be vigilant. The last thing we need after such a great business year is the ‘never had it so good’ generation becoming the ‘never lost it so quick’ one instead. After all, caveat emptor - buyer beware, is as true today as it has been at any point in the past. www.loanintroducer.com

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Opportunities are still there for brokers and customers The second charge market remains buoyant with new business written reaching £100m for the second time this year, according to the latest figures.

In the same time, at Together we’ve seen an increase in the average volume of loans written and a greater demand from high net worth (HNW) customers.

This increased popularity may be, in part, as a result of the regulation having been brought in line with first charge lending following the Mortgage Credit Directive (MCD).

Since 2016, there seems to have been a greater acceptance of second charge loans among intermediaries.

However, there still needs to be more education to foster a better understanding of the possibilities that second charges can open up for borrowers.

Why would such a wealthy client need a second charge?

Second charges have traditionally been used for things such as renovations and debt consolidation, but brokers and their clients are seeing many more purposes for using this kind of finance.

We’ve lent to wealthy borrowers who have taken out seconds secured against their rental portfolios or their own homes, maybe to buy another property to live in, a holiday home abroad or to expand or improve their buy-to-let portfolios.

A high net worth borrower may also want to release equity they’ve built up in the large home they

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Richard Tugwell group intermediary relationship director, Together

currently live in or commercial property they own to expand their business or pay the deposit for a home for their (grown up) children, for example.

These types of loans could make sense because the borrower might be locked into a fixed-rate first charge mortgages and may have to pay prohibitive ERCs to remortgage, with no guarantee they will get the same (or better) rate.

They may want to borrow at a higher loan-to-value or may be on interest-only mortgage, with a repayment vehicle in place.

Unfortunately, some high-net worth borrowers may not fit the lending criteria of high street or private banks.

They often have multiple income streams rather than simply being employed or self-employed.

Specialist lenders have the capability to look closely into the client’s background, and the affordability of the loan rather than relying solely on loan-to-income and calculating income multiples as mainstream lenders tend to.

On top of that, wealthy clients may live in properties made predominantly of materials such as glass and steel, or be large, heavilyconverted homes or penthouse flats, for example, which may be considered non-standard by the high street, again meaning they could be unwilling to lend.

Case study one

In some cases, it can make good sense for a wealthy client to unlock the equity they already have in their home to fund improvements, which could add value to their home before selling it.

In a case brought to Together, we provided a £1.5m second charge to an entrepreneur and self-employed director of two highly successful companies.

The director, who runs two development and construction companies, needed the finance for building work at his £7.7m home, including building an indoor swimming complex.

He requested the finance from his bank but was told that his selfemployed status – and the fact his income came from multiple sources – meant he would be unable to borrow the full amount.

A broker referred him to Together and our in-house mortgage adviser reviewed the case, before agreeing to provide a second charge loan for £1.5m.

The customer had bought the large property, which stands in three acres of land, for £3m 10 years ago and estimates it is now worth more than £10m because of the refurbishments carried out over a decade.

Case study two

It could also be that clients are unwilling to relinquish a favourable rate on a first charge commercial loan, as was the case when Together helped the directors of an investment company expand their buy-tolet portfolio.

The directors, who have nearly 250 rental properties and run their portfolio as a limited company, secured a second charge loan over 26 of their rental homes, which are worth £3.5m, in just seven days.

They wanted to keep the rate on the current first charge buy-to-let mortgages but wanted to unlock the equity built up over 10 years.

The directors also needed to complete quickly to press ahead with expanding their property portfolio.

Broker Crystal Specialist Finance brought the case to Together, and the lender provided £879,000 through a second charge loan, agreeing repayments on an interestonly basis.

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Taking second chances Our panel discusses the current state of the second charge market Jessica Nangle: The second charge mortgage market saw volumes rise by 15% in June according to the FLA. This means more than 13,000 agreements were made in the first six months of 2019 which represents the strongest first half year performance in more than a decade. The industry is obviously doing something right, but how does it do even better?

Buster Tolfree: It’s nice to be talking about records but I think we come up with a new record on the FLA figures every month or so. Whether it’s a rolling quarter or units, there’s always a new positive to speak. But six months is a pretty decent time period.

There is growth which is fantastic and we should be pleased with that, but it’s also from a relatively low base, probably £5m - £10m.

There has been some growth in the mortgage market which this might be reflective of. It’s interesting in this time of year as we near Brexit that there is still some upsides. I think there is still a lot more to do in this market to get anywhere near the volumes it’s seen previously.

Richard Tugwell: I agree. The most encouraging thing for me is

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we are seeing new brokers send second charge loans in. This could be the start of something that could turn into something bigger if the education and mythbusting is there. That’s important and encouraging because we’ve been pushing out the message that you should include seconds as an option when remortgaging.

Stephen Lawrence: I think a real positive in the market is the number of 5-year fixes, plus 10-year fixes now start at 2.34%.

Virgin Money have also launched a 15-year term. People are going to go for that for the comfort.

They will still spend on their credit cards and will do home improvements, and some mortgages don’t allow further advances. I think there are some encouraging factors coming out which leads me to think there will be more secured loans in the future.

James Briggs: Buster’s right, it’s coming from a low base but if it was 15% from the other direction there would be plenty of people talking down the market. I think as an industry we should be giving ourselves a pat on our back. Getting growth going in the right direction and a record month is the fruits of our labour. 5-year

fixes have never been more popular. Paragon found that half of all new mortgages written out are 5-year plus fixed rate which can only be good for the second charge market as we go through the next few years. Those clients want to capital raise and maybe there are some restrictions around further advances. It’s a real positive but there’s still a lot more we can all do together.

SL: As a lender we’ve seen more home improvement loans. Debt consolidation is still there but home improvement loans are definitely on the increase.

BT: That might bode well for the future. We are only starting to see the increase of that now. As people take longer-term fixes there’s an opportunity there.

RT: There’s also more opportunity to revisit a client. If a client is on a 5-year, 10-year fix when are you going to go back to them?

Second charges are the reason to go back.

JB: Brokers have lost that 2-year income cycle from refinancing.

Catherine Beaumont: A lot of my renewals are now five years rather than two. I still think the

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Round-table

(From L to R): Buster Tolfree, United Trust Bank; Stephen Lawrence, Norton; Catherine Beaumont, London Money; Michael Lawlor, MAB; Jon Sturgess, Masthaven; James Briggs, Precise; Richard Tugwell, Together

15-year fix is too long to fix most clients in with. As brokers we need to be reviewing that carefully.

SL: The rates are attractive for these longer-term fixes.

CB: But a lot can happen in that time.

BT: And it depends on the ERC period.

SL: I think another lender will then launch a 15-year fix with less onerous repayment charges. Is somebody then going to bring out a 20 or 25-year fix?

JB: Those long-term fixed rates are more common in Europe. In the UK, we are quite unique and getting used to the five year cycle rather than two years. Compared

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to Europe that is a short period of time.

JN: Second charges now have some of the lowest rates ever seen, lower fees and zero ERCs. How can we promote the product better to get more brokers interested in the sector?

RT: You have to look first why brokers aren’t interested in the sector. I don’t think that’s rate alone. There’s still a lot of myths out there about where the sector is and huge confusion with regulation. The regulator came out and said ‘if you’re thinking about remortgages you should think about second charges’ but they didn’t back that up with other statements that came out later on. I think they could play a part in that to help bust some of

the myths around advice. And what you should be looking at when you’re looking at second charges is perhaps not as clear if you’re a new broker rather than experienced. I think the clubs and networks have a role to help their members through the minefield.

Also, rates aren’t as sourceable as with first charges so not many people see them on a sourcing engine. When they see best buy tables in the press they go to a broker and say ‘I’ve seen that latest 10-year fix’. I think some advertising of the rates would help, but there is also some myth busting to do first.

Michael Lawlor: I’d further the education part. Brightstar is a packager that does a lot of educating around mortgage brokers. A lot of new brokers don’t know about second 

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charges. It’s about spotting the opportunities. There’s a big gap in education.

JB: From a lender’s perspective we’re trying to think creatively about how we market those products. Email campaigns are great but are probably the first to get deleted in a busy broker’s day. We’re working hard on different mediums like webcast, podcast and social media is something we’re fond of for different ways to educate people.

While there’s no substitute to sitting with someone we need to use modern methods of media to get the message out too.

BT: I think one of the challenges is a lot of lenders and brokers do roadshows and roundtables but

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typically you’re pitching to a room of people already interested in specialist finance. You want the people not there.

SL: I’ve been doing it for 25 - 30 years. I joined Citi Group having never written a second charge, found out about it and thought it was fantastic. Now many still don’t sell seconds because they think it’s the product it was 20 years ago, which was very expensive. But it’s not, it’s now great with high LTVs and in many cases the best product. But can you teach an old dog new tricks?

BT: Also, if you’re a small mortgage brokerage you might not want to send a case to a master broker or packager. The market has been master broker/

packager led. Lenders want to have a master broker panel and a direct lender panel and to provide choice but the broker has to be comfortable they know what they’re doing if they’re going direct or going to a master broker and risk, in their eyes, losing the customer. There’s almost nervousness around distribution.

RT: I think that’s where packagers and network brokers need to work harder. If you’re a one man broker you’re thinking if you send that to a packager you’ll lose the client, but most won’t, they’ll look after the client and send them back. I think the education from clubs and networks is needed to say "We have a preferred panel of packagers and if you use them you won’t lose the client, they’ll

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give the best advise and will look after the customer".

JB: I think if an adviser is looking for a reason not to do seconds, which unfortunately some are, they’re forced down a master broker/packager route that’s a good excuse for them to skip seconds and do remortgages. In a perfect world the lender would have a panel of master brokers and the option to go direct, which is what we have. What I find a bit disappointing is the engagement of some mortgage networks where they give very limited distribution. If that distribution is not aligned to their business in terms of fees or compliance, that broker and their clients are effectively out of the seconds market.

JN: Why are so many brokers still avoiding seconds?

Round-table

our business comes from DAs. I think the club and network roadshows are a better place to reach people not doing seconds but it’s also the follow-up afterwards.

JB: For me it’s lack of confidence in the product or a lack of appreciation of the product. We spend a lot of time talking to brokers and seconds is part of our pitch. We focussed a lot of our efforts convincing the brokers but maybe we should focus more effort as lenders help support the back end of compliance, helping to show what could be better as a second charge. For me, appointing a master broker for your ARs and then doing nothing with it is almost as good as doing nothing at all.

JS: There’s education on other uses for second charges too,

besides debt consolidation.

SL: Lots of intermediaries say they just don’t get second charges, but they do a client review and talk about pensions, life insurance and probably home improvements. They should ask client if they have credit cards.

Most people do. There’s business there.

CB: It has to come down to the best client outcome. If seconds are the best solution for the client you should be offering that as part of your advice, otherwise you’re not doing your job properly.

BT: Saying you don’t see second charge customers is like saying you don’t see remortgage customers. If it’s a PT, further advance or remortgage it could also be a second charge. 

Jon Sturgess: I think there’s a laziness of some of them. They’re doing mortgages and insurances and don’t want to take on that challenge. They think it’s difficult, but in reality it’s not, bar a few extra steps that a lender or master broker would help them with.

RT: When first mortgages were really busy eight to nine years ago, people stopped selling insurance. At the moment product transfers (PTs) are really busy so people are not looking for other loans. I think as PTs become less busy as lenders take more of that direct when they get the digitalisation of that aligned, brokers will look at other avenues such as specialist lending, including seconds. Networks are perhaps not encouraging. Most of

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RT: Specialist sourcing in general, not just seconds, needs to up its game. We have Criteria Hub and Knowledge Bank, where you can check whether things fit but people still default to the old rate sourced model. With packagers, if we have a DA stand at an event we have a master broker there to say how he’ll do it for you and not steal the client. That whole confidence thing is starting to move on.

JN: Should there be a maximum charge for a broker fee on a secured loan?

JB: What is the broker’s strategy with clients? If the client has a fixed rate and you don’t maintain that contact, if they have a debt consolidation situation they would find someone else online.

JN: We saw a statement saying second charges are not the solution but are part of the solution. What do you think?

RT: It is part of the solution.

Holistic advice is having the tools to satisfy the client’s needs.

Seconds has to be part of that. I think there is a nervousness out there when advising on seconds and therefore it’s not mentioned.

It’s not going to be the solution but part of the solution, part of a product range that hopefully brokers can understand and advise on.

ML: It has to be part of the solution. It’s all about the client outcome. You have to ensure you give the best client outcome. I’m

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authorised through MAB. They very much promote Brightstar.

When we had the MAB conference, I met William Lloyd on the stand then did a follow up, speaking to Darren Parry via webinar. I started off doing unsecured loans and moved into seconds. It’s all about sharpening swords. I just do mortgages which is great and you forget about other aspects.

It’s been harder this year and i’ve had to ensure I looked at other income streams. I have confidence in Brightstar and their good team. With my experience I can tell if someone has good knowledge with it.

CB: It feels so much freer advice wise being a DA because we know we can approach a bigger pool of lenders. Under a network I felt very restricted.

BT: If someone comes to us directly they’ll typically come back again one day. Sourcing isn’t great though.

CB: I’d just suggest keep them reasonable. I don’t think any broker should feel as though they can charge as much as they like.

I think it should be considered the same as advising on a first charge. I think we need to keep the fees reasonable.

ML: I think it should be reasonable, but I don’t think you should impose restrictions on people. It’s your own business. If someone else comes along with another business model, you won’t win any of that business if you charge fees that are too high.

JB: It’s for brokers and clients to determine the fee level that represents best value.

BT: We don’t have caps on fees, the regulator doesn’t impose any on firsts or seconds. Historically it had a bad reputation but that’s because it had a bad reputation 15 years ago. Our average fee is less than 4%. If the customer and broker had reached a level on the appropriate level of remuneration, then it’s appropriate. And if it isn’t then I’d argue where is the

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regulator? They’ve looked at the market and never made one comment on fees.

ML: And as long as it’s not taking advantage of vulnerable clients.

Some brokers do.

BT: Most lenders impose a high level cap on what we believe to be within the bounds of play. Not everybody does but most do. It’s something lenders should look at as part of due diligence. We regularly look at our brokers and if we have concerns over any then we may stop interacting with them, something we’ve done before. I don’t think we need an upper and lower set cap and I think the regulator supports that.

JB: There’s an argument that the market finds its own level anyway.

As awareness grows of seconds, clients will shop around more for

Round-table

a better deal.

RT: I think the difficulty at the moment is some people say they don’t get into the market because of fees. I think having an arbitrary cap doesn’t make sense. I think the regulator can play a bigger part. Lynda Blackwell talked about fees being too high but there was never an opposite view that asked where the market was.

There’s transparency around it, it’s a regulated product with lots of paperwork. If there is more transparency to clients on what they should look at when looking at broker paperwork that’ll bust some of those myths. It’s awareness of what fees are.

BT: It’s not always being compared like-for-like. With firsts, lenders typically do the valuations and they’ll be an upfront valuation fee. However with seconds,

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depending on the route that’s not the case.

JB: Also with legal costs. Master brokers do the legal work a solicitor would do, checking the title, ownership and lease length.

There’s no solicitor fees with second charges typically.

RT: It is how we get that known to clients.

JN: What does the market holdin regards to the further increase in requirements for verification of income, expenditure on secured loans, and conversion rates?

JS: We’re always very strict at looking at income but there’s also an avenue which some first charge lenders use, at making an assessment on customers’ incomes through their bank 

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Round-table

accounts which they can assess and it’s done online quickly.

Different lenders have different models. We use OMS. It’s making sure the client isn’t being overstretched and from a verification point of view, we don’t often ask for bank statements because of OMS. Others do. It’s a broad spectrum on what can be offered.

BT: It’s a specialist product so there’s normally a quirk on income. It’s a different type of product and open banking is a solution for certain mortgage products but in this space I’m not sure it’s that useful. Someone will do it, but it’d be for real vanilla cases with simple income. I think other things can be automated before affordability and income.

JB: We made some strides forward when it comes to certification of documentation last year, making processing easier.

We now accept scanned copies of 99% of documents which speeds things up. Customers

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may be nervous about posting a passport. We have an open banking solution in the second charge space but take up is very low and a lot of that is because of confidence of data security. It’s a specialist market and we’re probably not a market to pioneer something so technologically advanced. It filters down from the high street making it work on traditional vanilla mortgages and as time goes by the public and specialist lenders will get more comfortable with it.

JN: We are seeing so many lenders enter the buy-to-let market, but can we see anymore lenders enter the second charge market?

RT: It’s necessity. If I was a high street lender looking at HSBC with its money, I’d think if I can’t compete with that then I might have to move to another market.

That’s why buy-to-let has been picked up a bit more I think. With second charges it’s ying and yan.

As they get cheaper the margin

gets lower and pricing for risk gets harder, forcing lenders out of it and necessity will force them into other markets.

JB: You can’t compare the buy-to-let market to the seconds market because buy-to-let is so diverse and specialised whereas seconds is a little more traditional and vanilla. There’s work to do to convince people of that. Unless someone can offer something different than what’s already there, they’d struggle to carve out any market share.

JN: Has Brexit caused confidence issues in the market?

There also tends to be other concerns, such as inter-party politics or regulation.

ML: Being a broker dealing with house purchases all the time we’ve definitely seen people more reluctant to pull the trigger and our fall through rates have definitely increased. People are pulling out more easily than they would have previously. July and

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August have been very strong months though.

JB: Is that because of confidence of the house values will drop or confidence of the sustainability of their incomes?

ML: Where I’m based in North London the incomes are good.

People have just been getting on with it. People still need somewhere to live, are still having kids and are still getting divorced. All the normal things that drive the market are all still happening.

We’ve seen an upsurge and we’ve been busy.

CB: I’ve had my busiest month this month and I’ve seen that people want to fix for longer.

First-time buyers are thinking of three or 5-year fixes to get them over the Brexit period. People were worried post-referendum but then everybody got a bit bored just carried on. They’re more conscious of how long they want to protect themselves for after buying their property. I think there’s quite a lot of confidence in the market. I think property values especially in the South East are still growing, although London has been hit a little bit harder. I don’t know if we’ll see a wobble as we near October but at the moment it’s positive.

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Round-table

ML: I’m seeing more people interested in 2-year fixes because they think rates will stay very flat with Brexit.

BT: My friends who don’t work in financial services are just sick of Brexit now. So they’re just tending to just carry on.

RT: London is the worst place to view it from because the London property market is affected by a range of things. The market is picking up there at the moment on the back of foreign investment because of a favorable exchange rate. Overall, it’s just another thing to consider.

JB: From a second charge point of view you might get clients that instead of moving, want to stay where they are.

Home improvements are on the rise. People want debt consolidation which the high street gets worried about.

Some are drawing money out of their own residence to invest in property and acquire buy-to-lets in these uncertain times.

BT: I think for most people in the mortgage market Brexit could be a good thing for seconds.

People don’t want to move because they’ve taken long-term fixes or the market isn’t as strong.

So, with home improvements and extensions it could arguably be a good thing.

JN: It’s interesting to hear confidence is increasing.

JB: The market has gone up 15% and that’s during this period!

JN: What are your expectations for the rest of the year?

ML: People are still going to have the same events, want the same loft conversions and have long-term fixes so I think we’ll see a steady increase in seconds.

RT: I think the momentum suggests its going up whether it is increasing quick and far enough has been the debate.

We’re certainly expecting to see more second charge loans in the second half of the year than the first, setting new records albeit from a low base.

Momentum is strong and if we get the education right it should pick up.

JB: We haven’t seen the August dip this year that we have seen in previous years.

More of the same is needed, more education and more discussions with brokers to build on the good start to the year. 

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Loan Introducer

Secured loans need to be considered As a champion of secured loans, I and my colleagues continue to make the case for this method of capital raising and there are plenty of compelling reasons why every adviser should at least have them under consideration.

We, along with our peers, have had much success in persuading many advisers to look at the second charge option, where it is clear that a remortgage is not the best solution. Yet, we still come up against an objection from some advisers on the grounds of cost and specifically fees charged to customers by some master brokers.

I have seen instances of marketing material for advisers which makes no mention of any product USPs, but which simply focus on telling the adviser that they can earn more because the customer can be

Damian Cain director, Complete FS

“We still come up against an objection from some advisers on the grounds of cost” charged a bigger fee. Appealing to these advisers to consider using a particular master broker just because they can pay more to the adviser runs contrary to our view of ‘best advice’. Customers expect that by going to an adviser they will receive unbiased advice, which is not predicated on how much more of a fee the adviser will receive.

Frankly, I can understand why some advisers and mortgage networks have concerns. Any proposition that appeals to baser instincts of personal profit over best outcomes for the customer belongs to the Dark Ages. It certainly has no place in today’s market. In my

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MORTGAGE INTRODUCER

experience, the overwhelming majority of advisers are totally focused on best customer outcomes and understand that it is this focus that retains long term client loyalty. Our philosophy at Complete FS is one of total transparency, our belief is that it is our duty to make it as easy as possible for the adviser to compare offerings so that they can make the right recommendations for their clients.

There are many excellent master brokers and healthy competition drives down costs to the customer and can only be healthy. My message to advisers is to gain a clear understanding of the various options available and steer clear of any offerings where there is a lack of transparency. To put it in a nutshell, when a master broker provides a quote for a secured loan, consider the difference between the gross loan and the net loan and ask yourself if that is a fair price for your client to pay.

As an industry we need to be alert to any practice that perpetuates the resistance to what is a fantastic and relevant product. In this day and age, advice is rightly centred on the importance of making sure that the customer has the right deal to fit their circumstances with particular attention to value for money.

As I said, secured loans are excellent products and I would urge intermediaries to look around the sector to find the many specialists, who, like Complete FS, treat your customer with the same duty of care as you do.

Other issues

For all the good work done by us and others in the sector, there is still a proportion of advisers who have never been interested in secured loans. Now that might be because they opted not to seek permissions SEPTEMBER 2019

to transact second charge business, resulting in them continuing to offer a purely remortgage/further advance menu to their customers The question we have to ask is whether remortgaging should always be the primary means of providing the funds, when in many cases, there is no need to disturb a perfectly good first charge mortgage? If we look at where capital raising demand is increasing today, customers who would have been looking to move are hedging their bets and staying put. Demand is moving away from wholesale refinancing to a requirement for item specific funding such as home improvements and extensions.

For the growing number of customers whose income or credit profile might have changed, whose need for speedy resolution makes a remortgage impractical, do not want to pay interest on the extra money borrowed over the term of a new mortgage or do not want the relatively small sum, relative to the size of their mortgage, added on to create a brand new mortgage, a second charge mortgage makes a lot of sense.

The sector has now passed £1bn of origination per annum, has been regulated in the same way as the first charge market for two years, and follows the same underwriting regimen on affordability as its larger cousin.

For those who do not have their second charge permissions or just want access to a second charge service that is representative of the market, and can see that there are gaps that should be filled by a secured loan, firms like Complete FS are able to provide a full advice service.

There are many good reasons to consider adding secured loans to your proposition. www.mortgageintroducer.com

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