Second charge products may not be the most obvious route, but intermediaries are now acknowledging their presence
Some weeks on from the implementation of the Mortgage Credit Directive it is now possible to start to gauge how the second-charge market has handled the change and how we might develop the sector.
On the whole, the implementation of the MCD went well. One of the major challenges was determining how the intermediary market might react, what route they would opt to take, and how we could position offerings to meet those different choices.
Back on the agenda
Achieving regulatory compliance by a certain deadline seems to be a rather effective “leveller” in this marketplace. It focuses the mind and makes you look deep into your organisation to ensure it is not just fit for purpose now but future-proofed for what may come over the horizon.
As we all know, regulation does not tend to stay the same for long, so the anticipation has to be that we will face ongoing changes at both a national and European level.
It is an unfortunate fact of life that legislation can often be open to interpretation. A good example of this is documentation requirements. As the second-charge lenders have rolled out their ESIS templates, opinion is divided on the extent to which they need to differentiate who is involved in the advice/packaging process.
I suspect their anticipation was more along the lines of a referral and the master broker providing the full advice service, rather than the two-tier approach of intermediaries giving the advice and using a master broker for packaging.
And what of intermediary reaction to the MCD requirement to signpost a second-charge mortgage or an unsecured loan as a viable alternative to a remortgage or further advance? Well, as expected, the level of interest in second-charge products has jumped considerably.
The MCD has forced many intermediaries, for whom second charges were simply not on their agenda, to at least acknowledge their presence. This has led many to prefer to fully understand the product and find a route to market where they could provide them to suitable clients.
Let’s be honest here: nine out of 10 intermediaries will probably still find a remortgage the most suitable option. But it is worth the intermediary working through those other product options. Indeed, what about the one in 10 clients who are right for a second charge?
By failing to embrace the second-charge option, either through the provision of advice themselves or by introduction to a master broker, can intermediaries truthfully say they are servicing the client’s needs?
What is more, what about the simple business and potentially valuable income-generating opportunity an intermediary will be missing by disengaging from second charges? The good news is that there is no shortage of potential partners with whom to tie up to support that decision and to smooth the path towards advice provision to potential second-charge clients.
Finally, let’s not forget the mention of unsecured loans in the MCD. I acknowledge intermediaries do not need to include unsecured loans in their service proposition but they do need to signpost them as a viable alternative.
Having done so, it would be shortsighted for an intermediary not to fulfil that need if, for instance, their client homes in on an unsecured loan and asks for more information. I am amazed how many intermediaries shrug this off as not part of their chosen service proposition and “out of scope” to their clients.
It is a simple message but there are some who continue to ignore it. It makes sense from all perspectives – regulatory, commercially, client-centric – to look at the full range of options advocated by the MCD, not least second charges. It also makes sense to find a route to market that delivers in all areas.
The obvious benefits of getting this right should be plain for all to see.
Steve Harness is commercial director at The Loans Engine