View more on these topics

In My Opinion: Second to none?


As the second charge sector faces huge changes and growth, market players can have a big role in shaping the future

Three months on from the implementation of the Mortgage Credit Directive, the initial chaos has been replaced by calm.

We saw the short-term impact on the market and we know the madness of March was exacerbated by the stamp duty premium on second homes kicking in around the same time.

But we are all still here and doing business on the right side of the regulator.

That said, the long-term impact of the MCD is more interesting – and yet to be realised. We already have some clues about the market shifts that will take place as a direct result of the directive and I am willing to take a punt on what we will see change over the next 12 to 24 months.

Volume growth
First, the size of the seconds market will increase massively as brokers build their confidence in recommending second charge mortgages where previously they would have advised a remortgage.

This growth in volume will lead to a reduction in second charge rates, taking them closer to remortgage rates as they compete head on. Of course, it is a virtuous circle: the more rates fall, the more brokers recommend seconds over remortgages, and volumes increase again.

But greater volumes or not, someone has to take the hit for the falling rates and this is likely to be intermediaries in the form of reduced commission.

Fees will also fall when clients start to pay for valuations upfront, instead of the intermediary paying them. Second charge intermediary firms have historically taken the risk that, after paying for the valuation, the client might decide not to proceed with the loan. This has long been cited as justification for higher fees compared to those for remortgages.

By getting the client to pay for the valuation, that risk is taken away from the intermediary. But reduced risk means reduced reward and there will be further downward pressure on second charge fees as a result.

Second charge products themselves will change too, with an added level of complexity as we see the introduction of fixed rates and, as a result, early repayment charges attached to fixed-rate seconds. While this was not allowed under the Consumer Credit Act, it is likely to emerge now.

Distribution evolution
Second charge distribution will change enormously. First, second charge lenders are already beginning to provide direct-to-broker offerings to capitalise on the increased confidence in advising on seconds.

Second, the introduction of specialist sourcing systems will make it easier for brokers to compare second charge loans with remortgages, and provide an audit trail to the regulator. This will bring even more confidence regardless of whether they decide to access the products directly or through a specialist distributor.

We will also see the rise of second charge mortgage clubs. Well, why not? If the products are now on a par with remortgages, it makes sense that directly authorised brokers are able to benefit from the buying power of a club.

It is a fascinating time to be involved in the second charge sector because it is facing huge changes and significant growth, and there is no definitive blueprint as to what the future market will look like. It is up to those of us in the sector to help shape it.

Nigel Payne is managing director of TFC Homeloans



Property 118 calls on brokers to challenge FOS

Landlord group Property 118 is calling on mortgage advisers to challenge the Financial Ombudsman Service over its 2014 decision on West Bromwich borrowers. Property 118 recently won a court case against West Bromwich over raising tracker rates independently of base rate and calling in loans with short notice. Separately, landlords took their cases to the […]


HSBC launches 0.99% two-year fix

HSBC has launched a market low sub-1 per cent two-year fixed rate mortgage on loans up to £500,000. The new HSBC product is fixed at 0.99 per cent with a £1,499 product fee up to 65 per cent LTV. The mortgage is available for purchases and remortgages. Customers can overpay up to 10 per cent […]

lifetime lease purchases

What is a lifetime lease purchase?

Lifetime lease purchase deals involve raising finance but not on current properties. Rather, they are taken out when consumers move home. They are called lifetime lease schemes. Although not identical to sell-and-rent-back options, they are unregulated too. Lifetime leases are designed for clients who want to move but either cannot afford to or don’t want […]

Value for money in DC pensions

The Pension Policy Institute (PPI)’s recent report “Value for money in DC pensions” tries to identify factors by which people can assess whether their pension offers fair value for money (VFM). Fiona Tait provides an overview of the findings. Positive Outcomes It is extremely hard to assess VFM in a pension. Press activity naturally focuses […]

Brexit and the mid cap buying opportunities

Video update from Mark Martin, Head of UK Equities, Neptune Investment Management With the Brexit referendum scheduled for 23 June, how much risk is priced into the market and is the current volatility a long-term buying opportunity? Watch Mark Martin, Head of UK Equities, and Holly Cassell, Assistant Manager on the UK Mid Cap and […]


News and expert analysis straight to your inbox

Sign up