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

Listen carefully: Can you hear the distant rumble?

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Listen carefully: Can you hear the distant rumble?

That's the sound of the FCA taking over second charge loan regulation, a move which now affects every single mortgage broker, every secured loan broker and every mortgage network in the UK, every single day. Some brokers still don't realise it's happening, some are burying their heads in the sand and hoping it goes away (it won't), and some are examining the rules in depth and applying them through investment in their people, technology and processes.

The former two groups of brokers are the most dangerous: around half of all mortgage brokers who still don't want or think they don't need to understand why topping up a client's existing mortgage with a second charge loan can work out a lot cheaper than a full remortgage or a further advance. By not examining all of the products available, this group makes financial decisions each day that may unnecessarily cost their clients thousands, tens of thousands and in some cases hundreds of thousands of pounds. Unfortunately in this group there are also some secured loans packagers that are woefully under-capitalised and are therefore unable to implement the FCA regime, effectively leaving customers open to poor outcomes, but are happy to carry on regardless in this interim period.

The latter is a small group of second charge brokers and lenders who represent 80 per cent of the industry and who meet in private every few months to develop and plan how to best implement FCA regulation of second charge mortgages into the mainstream mortgage market by March 2016.

The FCA's recent consultation paper CP14/20 clearly states for the very first time that:

Where a borrower wants to raise additional funds, they must be made aware that in addition to a further advance or remortgage, a second charge or unsecured loan may be more appropriate.

The trade journals have picked up on this creating that all important media interest, a key phase in any growth industry. My own organisation has been banging away at this very same drum for the last 13 years and I am still constantly amazed at the responses of some mortgage brokers who, no matter how logical the explanation, refuse to listen to the fact that a second charge can often work out to be a better customer outcome. God help their clients! There are even some mortgage brokers who have never heard of a second charge loan or have any idea of how they work; aargggh...! How can such brokers be fit for purpose?

Fortunately, more than half of mortgage brokers do check the costs of a second charge before remortgaging their clients and are happy to point their client in the right direction if that is the case. I know this because I polled the UK's brokers and asked them the question.

These are the forward-thinking brokers that know and understand their job and the importance of good customer outcomes. So at least half of Britons (who use a broker) that wish to raise additional funds using their home as security can sleep at night knowing they are getting the best deal on offer for them. And for the other half? Well, the mind boggles. You see, for the 2.8 million people who have an interest-only mortgage or those on a very low rate mortgage, then a second charge is almost always going to be a cheaper option for them because nowadays the rates start at a very mortgage-like 4.45 per cent, with no upfront fees and tiny redemption penalties.

I can categorically guarantee you one thing: the FCA's guidance is clear on the matter, and over the next couple of years, those mortgage brokers that integrate first and second charge products harmoniously will have nothing to fear, but those that stare down the FCA by still refusing to consider the options, face a most unwelcome inevitability.

The great news is that has all the tools you need to make the right decisions today and for every day after, free of charge, so there is absolutely no need to fall into the bear trap. It'll help you compare remortgage with second charge loan and guide you seamlessly through the application process, and you'll barely break out a sweat doing so.

Just don't say I didn't warn you.

Attributed to Matt Cottle of Y3S

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