One of the biggest decisions all mortgage firms will have to make to implement the provisions of the Mortgage Credit Directive is whether to include second charge loans in their scope of service. For many years, the vast majority of firms have been used to telling consumers that they cannot cover lender direct deals, further advances or certain exclusive products. This does not change from next March, but firms will have to decide whether to add seconds to this list or to include it in their advice.
For many this will not be a simple decision, as inclusion means that in every piece of advice, for a new purchase or a re-mortgage, the adviser will have to consider if bringing a second charge into the equation is in the customer’s best interests. In addition the firm will have to decide if they will do this in-house, or pass part of the process to a third party – more usually a second charge Master Broker. It is important to understand that first and second charge mortgages will be in the same regulatory regime. In advising any customer it will be about more than the cost of the loan. In some cases it will be about speed, convenience or availability of the loans. It remains difficult to undertake a simultaneous first and second charge loan on completion of a new purchase.
From next March firms will have to move to the new regime, with the option to do this earlier from September. In summary the choices are
- Offer Firsts only – Notify the customer that there are alternative options, and ask if they wish to proceed based on the service offered.
- Firsts and Seconds undertaken in-house by advising broker – Compare costs of mortgage or remortgage via sourcing systems using first charge loan only or combining with a second to produce a blended cost, and make an appropriate recommendation
- Firsts and seconds – but information is outsourced probably to a second charge Master Broker – As above with original broker still taking responsibility for the advice. This is effectively using the Master Broker as a “packager” to provide information to assist the adviser. They may also assist in preparing documentation and support.
- Firsts and seconds – but outsourced with the customer being transferred to the Master Broker for advice – In this situation the second charge firm will then take responsibility for the advice, based on the referral from the original firm. Both firms will have to take care that they only operate within their own scope and they have appropriate agreements and declarations that make it clear to the consumer what is happening. They need to ensure appropriate information is passed to allow the costs of any remortgage to be compared to the second charge loan and make an appropriate recommendation. In some cases it may be necessary to pass the customer back to the original firm for a remortgage and again this will have to be done with the customer in mind.
For any referral to a seconds specialist there will need to be commercial and contractual arrangements between the firms to ensure there is clarity about any part of the advice the customer receives, or agreement that this is merely information being passed back to the original adviser to assist their advice. These contracts will have to define the responsibilities for advice and remuneration. The agreements will need to also consider what the customer journey looks like in passing the customer across. All firms will have to ensure that the customer is clear about who is giving any advice and the scope or limitations of their service. Where customers are moved between firms this will have to be explicit. Who is giving the advice and taking responsibility will have to be clear to the consumer at all times.
The real emphasis here has to be “Say what you do, and Do what you say”.