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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

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”.

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