I recently had a week’s adventure in the Pyrenees. Hiking, canyoning, rock climbing — it’s my escape from the fast-paced world of owning a business that is constantly measured by brokers for its success in delivering for clients.
Service-level agreements (SLA) and revenue returns are scrutinised, rightly, against those of our peers. It keeps me on my toes.
The appetite of brokers has been revitalised
I found myself alone for about five hours, by a dam with a frozen lake, and took the time to reflect on the successes of the past 12 months, as well as the opportunities.
The biggest growth area for us since the third quarter of 2021 has been the revitalised appetite of brokers for referring second charge enquiries. I analysed why this market was so popular and why, although it was in effect the same product as its larger and more recognised cousin, the ‘first mortgage’, it continued to offer options that might not be available in the mainstream market.
But why should it be different?
Same
- The product is a mortgage; it is registered as a charge against a residential or investment dwelling in exactly the same way — although an equitable charge is sometimes used and is not available via Santander, etcetera.
- It is regulated by the Financial Conduct Authority — since April 2016, in fact.
- Clients are analysed not only on the remaining equity in their property and the property type but on their capacity to repay the loan.
- Second charge mortgages have reduced their pricing, similar to how the first charge market has. However, the headline rate of 6.7% reduced to 3.37% was possibly more dramatic.
I have been working with my teams to educate brokers on when a second charge is and is not appropriate. But consumers are reacting to factors such as the cost-of-living crisis, increased rates and spiralling utility bills, so it is not surprising they are looking to consolidate their finances.
A mortgage broker without this product and a reputable master broker to work with could lack a weapon in their arsenal
Reduced daily spending is now a huge factor for many; the remortgage market is increasing, and brokers are still flat out assisting new and existing clients.
The regulator states that, when considering capital raising, an intermediary must consider alternatives to remortgaging, such as unsecured borrowing, further advances or a second mortgage. They could arrange a second mortgage if that was the best solution — but they rarely do, and that is where the ‘different’ comes in.
Firms such as Positive Lending have invested huge sums in designing systems that work within the regulatory framework and help lenders to arrange funding, with minimal requests for paperwork. This market has survived and thrived through adaptation, service delivery and product design.
The second charge case can offer in days and complete shortly afterwards as there is no legal requirement post-offer to affect a consumer
Pepper Money recently had its best second charge month in history, producing a product range that dynamically priced each client based on risk.
A new equity release loan from Selina Finance is popular for the client looking to take drawdown loans for their home improvement project, for example. And five-year fixed rates with no early repayment charges? No shortage of options for that with many lenders.
Different
In my mind this market is different in culture and offers the following differentiations:
- Policies are not restricted by lenders if the loan is to consolidate other forms of credit. This is common in the mainstream market when capital raising, although care is paramount when recommending it for a consumer because they are often a vulnerable client by the FCA’s definition.
- Lender SLAs are typically lower than those of some lenders in the mainstream market. Any legal work, if required, is completed after the loan is funded.
- Income multiples tend to be more generous. However, the capacity for affordability will over-rule any income multiple and will be analysed by an expert within a master brokerage and lender.
- The relationship between lenders and master brokers is strong. How many times have you, the intermediary, worked until 11pm because your mid-afternoon email suggested you had just hours to secure a particular rate? If this happens in second charges, we are usually given a couple of weeks to get the work done and we receive a friendly call from our business development manager to advise us of the pending changes.
- Speed — a desktop survey and no consent from a first charge lender? The second charge case can offer in days and complete shortly afterwards as there is no legal requirement post-offer to affect a consumer.
I could go on. The market is in rude health and a mortgage broker without this product and a reputable master broker to work with could lack a weapon in their arsenal.
Paul McGonigle is chief executive of Positive Lending