April 17 – Should Seconds be First?

The Association of Finance Brokers (AFB), the trade body for second charge mortgage brokers, have an election open from 18 April to 5 May to elect their representative to the AMI Board. With four experienced candidates, the membership is spoilt for choice.  The challenge facing the individual elected will be how they use the opportunity offered here to promote and grow the market for seconds in conjunction with the predominant first charge world.

The post MCD growth in seconds has not materialised and many in the industry are concerned that with static volumes, pressure on fees and the higher costs of both processing cases and regulation, something has to give.  One of the issues facing firms is whether to focus on direct to consumer activity, or to work on developing relationships with first charge firms (business to business), or to work on both.  Unlike in the first charge world the lenders have virtually no capacity to transact direct with consumers.  However, some are looking more and more to go direct to first charge brokers, cutting the traditional second charge master broker out of the loop.

One of the barriers to this happening up to now has been the lack of a sourcing system which looks at both the firsts for a remortgage alongside the second charge option.  That is now due to change.  The other differences of using a master broker to arrange the valuation and to prepare the consumer loan documentation have been a barrier to some first charge brokers wanting to consider the second charge option.  Because of these very different processes involved and having to give another broker direct access to their customer, some have been reluctant to embrace seconds.

The FCA MCOB rules allow first charge advice firms to exclude second charge mortgages from their scope of service, which means that those who do not want to complicate their offering can avoid having to review detailed options.  Although the processing differences are one factor that puts first charge brokers off, lenders building the same processes for firsts and seconds may not be what the second charge sector wants.  The key must be to develop options which simplify the process for business to business offerings.  At the same time the second charge sector needs to look at how they re-engage with the consumer in a way that was the case pre-crisis when the back pages of most red-top daily newspapers were filled by second charge offerings.

Recent discussions between representatives of brokers and lenders facilitated by the AFB and the Finance and Leasing Association (FLA) centred on more partnership initiatives.  It is undoubted that all parts of industry are still coming to grips with the impact of full mortgage regulations and applying affordability and stress testing to all cases as well as developing new more flexible products.  The challenge for the trade bodies moving forward is how to help firms develop ideas for a better market place without breaching competition boundaries.  The lenders who operate in both the first and second charge markets have a unique opportunity to work with their first charge partners to develop their thinking on seconds.

For some consumers a second charge mortgage will be the best outcome – the market needs to make sure this happens in all appropriate cases.

Robert Sinclair
April 2017