Loan Introducer
effect Lending Channel believes the industry as a whole could do much more to raise consumer awareness. “Clients are not typically asking to borrow money using a second charge but rather are falling into our market by default when a mortgage or unsecured loan doesn’t go to plan,” he says. “Any form of mass direct consumer advertising would certainly help, but of course this would come at substantial cost for participants and is clearly a higher risk than the aggregator/introducer relationship type strategy that tends to drive the bulk of the volume currently,” he says.
First impressions
Darren Perry, head of second charge mortgages at Brightstar, takes a similar view and believes consumers know a little more than we perhaps give them credit for. He believes the problem does not lay in educating consumers as to what second charges are but rather what they can be used for. “The popular misconception is that second charge is for bad credit,” he says. “So, I think the education needs to be focussed on not just what the product itself is but what it can be used for and the rates available. We’ve seen rates as low as 2.09%, which a borrower or broker might not have assumed were available for a second charge,” he says. “I think borrowers probably also don’t understand that they are afforded all of the same protections on a second charge as they are on a first charge with the Financial Conduct Authority being the regulator.” Jo Breeden, managing director of Crystal Specialist Finance, believes unless mortgage brokers properly understand seconds, they will not be able to educate borrowers if asked about one. “Even if you did educate consumers, a broker wouldn’t necessarily have the right response when questioned about a second,” he says. He believes it is down to the regulator, networks, clubs, packagers and lenders
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to work together to ensure the second charge market has a voice that is heard. “First and foremost I think it comes from the regulator,” he says. “CeMAP is the required mortgage qualification but it does not have a second charge syllabus in there: why not? You can’t expect mortgage brokers to be educated about seconds when the exams they are sitting don’t have it in there – for me that’s where it has to begin,” he says. Another packager, who did not wish to be named, also felt the regulator could do more in terms of the information is displays on its affiliated site, the Money Advice Service. The site has a section entitled ‘When not to use a second mortgage’. Under the heading it advises not to get a second charge ‘if you’re already only just managing to repay your mortgage’ or ‘if you want to consolidate debts.’ Yet, the packager argues that a second charge might be a good option in both these scenarios. If for example a borrower’s unsecured credit was stopping them paying their mortgage and affecting their affordability, a consolidation loan might be exactly what the borrower needs to avoid arrears. While a borrower looking to consolidate debt might benefit from a second charge if they borrow at a low interest rate over a short period of time. This, the packager says, might help clear their debt. “Many consumers are stuck with unsecured credit at 20% and can only make the minimum payment – they are not reducing the debt so it could continue forever,” he says. “Even if we all do our bit to promote consumer awareness, it’s a tough nut to crack when the so called experts regurgitate standard warnings without any understanding or consideration of individual’s circumstances. “Surely the advice should be to speak to a qualified adviser to see if a second charge might be suitable rather than only drawing attention to what could go wrong? How is that clear fair and not misleading?” he adds.
Building broker bridges
Despite the best efforts of firms in the second charge market, there are limits to what they can achieve on their own. McGonigle says its national field team attend nearly 3,000 meetings per annum and second charges are a large part of
their education programme. “However, we are realists too – we understand that the market represents less than 0.5% of the mainstream market in terms of lending,” he says. “Brokers may not always think about the options of second charge lending, considering it to be expensive or dare I say a bit controversial in terms of practices. However, that is not the market at all. It is regulated in the same way as mortgages. If anything, in my opinion, second charge lenders are over-cautious at present as they know that they are under the spotlight of the regulator and pricing has never been better in the 27 years that I have been in the market,” he asserts. Davidson agrees that firms in the sector can only do so much. “There is the old saying: ‘You can lead a horse to water but you can’t make it drink.’ At Fluent we have prioritised education and training and will continue to do so. However, having presented the facts, advisers need to be free to decide where and when they wish to consider a second charge mortgage. “The number of ‘new to second charge’ advisers continues to grow, but in the end, the broker is there to make the recommendation. It is their call,” he says. Marshall believes the sector still needs to get to the root of understanding what brokers want to know and why they might not see the benefits of second charge loans. “We need to deliver to them products, solutions and information they are interested in, so that they become comfortable with second charge loans as an alternative,” he says. Budget constraints mean the days of Carol Vorderman, or indeed anyone, advertising second charges on TV appear to be over – for now at least. The biggest challenge the sector faces is still conveying its merits to an, at times, disengaged first-charge market. The process of education is a slow one but the sector seems to be moving in the right direction, with the latest figures from the Finance & Leasing Association showing a 19% increase in applications year-on-year in February. As Perry highlights: “If we do the job properly that creates the opportunity for people to talk about it with their friends and family and I think that is the greatest advert you can ever have.” MAY 2019
MORTGAGE INTRODUCER
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