Second charge rumour mill in overdrive
Tim Wheeldon, joint managing director of secured loan broker Fluent Money, said he is concerned by widespread and wrong information being given to brokers about how the new regime will affect the advice process.
He said: “One of the exaggerations that has been doing the rounds is that a mortgage broker quoting for a remortgage must also provide a quote for a second charge option.
“Under the new regime, a mortgage broker does not have to provide a second charge quote; all he or she is expected to do is to make the client aware that there are alternative sources of funding, one of which is secured loans.”
The Mortgage Credit Directive is due to be implemented in March next year and will mean brokers arranging regulated mortgage contracts must be much clearer with clients about the scope of their advice. Second charge loans, currently outside the regulated mortgage contract arena, will be brought inside the same regulatory regime.
Brokers have a choice about whether to include second charge mortgages within the scope of their advice – if they do not, they must disclose to clients that it could be an alternative to remortgage but that they cannot advise.
It is possible for brokers to refer seconds to another broker who is authorised to advise in that area, provided there is contractual clarity about who gives the client the advice.
If brokers do choose to seek permissions for second charge advice, they will need to compare traditional remortgage costs with the blended cost of retaining a first charge deal and supplementing with a second charge top up.
Wheeldon said: “I would love to be able to say it was true that brokers must provide a second charge quote, but it is wrong to make claims like that when the reality is so different.
“If we really want mortgage brokers to see second charge lending as a real alternative, then we need to be fully conversant with the rules, rather than playing on brokers’ understandable uncertainty over doing the right thing by their clients.
“If we want to convert more mortgage brokers to the second charge option, then let’s win them over with facts, not by frightening them into action which will be resented in the long run.”