Commit to getting your second charge business in line before the end of the year; the products are better than ever
I have heard it said that September is the new January – just without the Christmas hangover.
Despite the fact most of us have not set foot in a classroom for many moons, last month there was that ‘new school year’ mentality in us all. When the summer draws to a close, we are filled with a sense of new beginnings and a chance to improve on the year before. So how can you give yourself the best chance of having a strong autumn?
One thing we should all be doing is learning from what we have experienced so far. We are more than six months in to the Mortgage Credit Directive regime and the second charge market is changing rapidly. Over the summer months alone, we have seen the continuing effects of the new regulation take hold, particularly in terms of affordability. In many instances, we are seeing a lack of information being blamed for cases being rejected or at least delayed.
Amid the growing importance of affordability assessments, lenders are starting to take a closer look at self-employed borrowing. Clients should already be in the habit of preparing accounts but these need to reflect the true picture for maximum borrowing. As a rule, ensure you are giving the packager as much information as possible from the outset in every case.
This summer there has also been a drop in front-end conversions, as expected. Brokers have been scratching around for business and, as a result, the quality of the cases being submitted has dropped. However, we have also seen a huge increase in the percentage of customers returning application forms, and nearly 80 per cent of applications received have progressed to completion.
Clearly, a more robust sales process ensures the client understands the product from the outset, and a more detailed fact-find identifies the ‘no hope’ cases sooner. Whether advising or referring, such high conversion rates should encourage more brokers to get involved. The demand is definitely there, so we need to be focused on Q4 and to capitalise on the opportunities that exist.
Set yourself a to-do list and make a commitment to get your second charge business in line before the close of the year. Take the time to understand the product and its uses. Too many brokers tell me they are not embracing seconds because they do not have that type of client. But the fact is there is no specific ‘type’ of client.
Take, for example, a client who has a great mortgage deal that they do not want to give up. If the applicant’s profile or desired loan-to-value means a remortgage would be at a higher rate than they are currently on, or if first charge income multiples mean they are unable to raise the amount they require but you know they have good affordability, a second charge could be the way forward.
Promote it to your clients. If they do not know what second charges are, they are never going to ask for one. It is up to you to make sure your clients are aware of the benefits. The huge advertising budgets and TV campaigns of the second charge heyday may be long gone but the products are better than ever.
Get rid of misconceptions. Second charges are not a last resort. The image the industry had in the pre-credit crunch days no longer rings true. Loan rates now start from a very attractive 4 per cent, early repayment charges are low, if charged at all, and most lenders do not charge a lender fee. The regulatory overhaul of the past two years has separated the wheat from the chaff and the cowboy firms of old have long since left the market.
Be smart about who you partner with. Partner with a firm that has a strict ‘no cross-selling’ policy. And do not be scared of compliance. The treating customers fairly approach taken with first charge mortgages remains the same. As long as you make sure your client understands what is happening every step of the way, you will be fine.
No time like the present
Do not wait until 2017 to kick-start your second charge business. No doubt there will be thematic reviews around the corner but how you deal with seconds should already be firmly embedded. With products more attractive than ever and a regulatory drive to deal with seconds properly, it would be folly to let Q4 pass you by.
Steve Walker is managing director at Promise Solutions