The second charge model has long been built on big back-end fees but that does not wash in today’s market
What is a reasonable fee for a £50,000 second charge loan? £200? £500? £1,000? Maybe.
What about £5,000 or even more? In a sector the regulator intended to put on a level playing field with first charge lending, most of us would agree £5,000 is not fair. And when added to the loan it amounts to a lot more with interest.
Would you be happy explaining to a second charge client why you were choosing to use the £5,000 master broker over the £500 packager on the same deal from the same lender?
If you are directly authorised you have a choice, so take a close look at your distribution partners and their competitiveness.
If you are an authorised representative, it is up to your network who you use. But are you truly comfortable with that? The expensive fee option looks to me like a rip-off.
The second charge model has long been built on big back-end fees but that does not wash in today’s market. Distribution has grown up, moved on and got better.
Yet I am amazed by the fees some master brokers and packagers are still charging. I know why they are doing it, of course. Their businesses are predicated on large fee models and they cannot operate any other way – even those that claim to have fantastic technology that makes them more efficient. They are making hay while the sun shines and your clients are paying for it.
Technically, this all falls through a regulatory gap if you do not advise on second charges, but it is a pretty flimsy excuse for making your client pay thousands more than they need to. And it is not within the spirit of treating customers fairly.
A flat-fee packager model is already here, meaning you and your clients get specialist support and solutions at a clear, fair and transparent price.
Why would you choose the more expensive route?
Nigel Payne is managing director of TFC Homeloans