After the uncertainty of 2020, the second charge market has roared back to life with lenders innovating and competing for market share once more. This has led to packaging firms of all sizes feeling upbeat about the months and years ahead.
You cannot keep a good product down for long; the second charge sector has so many strengths that it always finds its place in the mortgage market. It is a hugely important tool in any broker’s arsenal and is a cornerstone of the advice process for clients’ capital-raising requirements.
Volumes are increasing month on month, but there is still a feeling that the sector is going to explode as we go further into 2021. Why is this? From my perspective, even though we are seeing an increase in second charge business in line with the wider industry, there is still a sense that the introducer community — made up largely of first charge residential mortgage brokers — is understandably distracted and purchases are taking centre stage. Supply-chain issues are causing strain and therefore there is a slight neglect of capital-raising business.
As the stamp duty extension comes to an end, I am not alone in thinking this will inevitably stimulate the second charge market further. Consolidation and home improvements will remain the two main reasons to utilise the second charge option.
Broker engagement
However, key to success is the engagement with the product by residential mortgage brokers. A huge portion of second charge completions is born in conversations brokers have with their clients, normally on the back of an application for a remortgage. Some still either ignore the product or incorrectly advise against it. This is not a criticism — there are justified reasons based on legacy issues that cause understandable cynicism regarding the benefits of a second charge.
Let us look at these legacy issues, and fast-forward to the present day:
- Rates and early repayment charges (ERCs) are high: There are now five-year fixed rates and a host of other products with no ERCs. Rates are as low as 3.37%.
- Fees are too high: Clients can pay for the associated costs, which drives fees down because costs and abortive costs are taken away from the packager.
- Lack of distribution — some feel it is an old boys’ club and lenders like dealing only with master brokers: This is not true anymore because most lenders provide direct access or via a mortgage club. Try it — if it works for you then great and, if not, simply choose the right packager to align to your business.
It is not just the product that has changed; the quality of advice has also evolved. I would advise brokers to not fear the second charge but embrace it. The products speak for themselves.
We have also noticed that some second charge advisers are having a change of mindset regarding their employment status and day-to-day working arrangements. The pandemic has shown that employers have nothing to fear from home working; advisers have proved it need not affect client outcome and performance. Couple this with the flexibility that self-employment brings and the two things complement each other superbly.
We are not the only firm with a self-employed proposition for second charge advisers, with the benefits for the adviser being clear. The use of tech and strong processes minimises the risk to the firm.
The landscape has changed with regard to lender appetite and products, the upsurge of completions is expected to increase, and finally front-line advisers have options to be self-employed and work remotely.
A lot can change in a year, and adapting with the times is the key to success.
Daniel Yeo is managing director of Specialist Finance Centre
