We are entering a new era in which brokers will not only embrace second charges but advise on them directly
The phrase ‘a new dawn’ gets bandied about, particularly in financial services. In the past few years, allegedly, we have had a new dawn for pensions, a new dawn for savers and at least three new dawns for the mortgage industry.
So if this year was called a new dawn for second charge, one could be forgiven for being unconvinced. Yet we really are on the cusp of a major change for the sector, which will have far-ranging ramifications.
It is hardly a secret that the sector was neglected for years; brokers regarded seconds as a world away from the first charge products they were used to and, as a result, gave them a wide berth.
That was supposed to change when the FCA assumed regulation of the consumer credit industry in 2014 – but there was little fanfare. The regulator instructed brokers to view second charges in the same way as their first charge counterparts but brokers, on the whole, did not listen. There was little urgency to engage with seconds.
So master brokers took it upon themselves to educate brokers, encouraging them to embrace secured loans as the useful and flexible products they were. Our sector has worked with networks in particular to ensure ARs have the information and support they need to offer second charges, and help the industry fulfil its potential.
Then last year the FCA made an announcement: brokers who declined to offer advice on seconds would lose their independent status. Many brokers value this status so the number of intermediaries choosing to advise on seconds is likely to increase significantly. Indeed, in February David Carrington, sales and marketing director at PTFS – one of the biggest networks – commented in the press that the firm had chosen to upskill its ARs to offer advice on seconds, describing it as an opportunity its brokers could not afford to miss.
And now we are on the cusp of a new dawn in which intermediaries will not only embrace second charges but advise on them directly. Ironically, this means fewer brokers will refer their cases to master brokers, preferring to maintain responsibility for the advice and, in doing so, retain their independent status.
To do this, however, they will need packagers. While second charges, as a product, are not dissimilar to first charges, the more bespoke approach that lenders take to seconds means a specialist knowledge of the sector is crucial.
To be 100 per cent reliant on technology is naive when relationships and experience are such an overriding factor. Our sourcing system is clever with near-miss filters, decline reasons and guides to show lower rates by altering the term or loan amount. Even so, an experienced underwriter with a good understanding of affordability calculations and debt consolidation will regularly come up with an alternative approach that truly is more suitable.
There is still a strong argument for sticking to the familiar referral approach to second charges but, either way, the experience of the expert packager is vital. However, I believe this year we will still see the rise of the specialist second charge packager. At Promise we have offered a packaging facility for five years, giving brokers the option of retaining responsibility for the advice or relinquishing it and using us as a referral partner. Other master brokers will, I am sure, follow suit.
Mortgage brokers will have more choice when appointing a packager but they must do so with care. Packagers that do not traditionally work with seconds but have chosen to enter the secured lending space will be finding their feet for some time. And master brokers that decide to develop a packaging facility must learn how to offer what is a very different process from that of referrals.
In this industry, expertise and insider knowledge are key to finding tailor-made solutions for borrowers. Newcomers are a given and competition will heat up – but experience will always win out.
Steve Walker is managing director of Promise Solutions