Alistair Ewing, director of second charge specialist The Lending Channel, runs through what the Mortgage Credit Directive means for 2016.
I write this piece in the middle of a frantic rush to get that last minute Christmas present, attend yet another festive lunch and push the remaining deals of the year over the line. But in the midst of this seasonal chaos the letters MCD keep distracting me from other pursuits.
With just over two months to go now until the European Mortgage Directive is officially implemented, how many times have you ignored the question ‘are you MCD ready?’ and thought ‘this won’t affect me’?
But in the last few weeks of 2015 I began to receive an increasing number of worried phone calls from mortgage brokers asking how they retain their independent status after March.
Despite the bluster, confusion and what often just seemed to be misdirection the Financial Conduct Authority has now confirmed the following position to me in writing.
If a broker is taking full responsibility for any advice on or arranging of the second charge loan, they can call themselves independent; if they’re not they can’t.
And it’s as simple as that isn’t it? Well actually no.
Yes, you may well be independent in the eyes of our regulator, but if you’ve never arranged or advised on a secured loan before, you will definitely need some training – in fact a lot of training.
And that’s precisely where having a relationship with a reliable packager is paramount to successful client outcomes.
Sure, some mortgage brokers will want to access second charge lenders directly and maximise on the healthy profit margins (although these may well diminish after MCD).
But I really don’t see the floodgates opening with large numbers of brokers trying to open agencies with secured lenders – and indeed could these lenders even cope with this increased demand and would they really want to?
Personally I don’t think so.
So back to the packager (or distributor if the word packager offends) model then. With second charges falling under the same MCOB rules as traditional first charge mortgages, the sales and advice process will be very similar.
The challenges however, will arise when the question second or first charge is asked.
Too an experienced seconds expert, identifying the clients and scenarios that will benefit from a second charge solution, has not changed and therefore will be straightforward.
But to a firsts broker with limited exposure to this market, product training and awareness becomes essential if they are to have any hope of giving the appropriate independent advice.
Therefore make sure you align your services with a packager who at least ticks the following boxes:
• Whole of market second charge mortgage sourcing system
• Trusted reputation
Of course, you could just decide to drop the independent status because the perceived hassle isn’t worth the rewards and simply refer out or introduce your second charge leads.
In summary then and in my opinion I believe that although the early part of this year will undoubtedly bring challenges, overall the changes will have a positive impact on our industry.
More brokers will introduce our products to a wider community of clients, ultimately driving higher volumes, albeit we may see a lull first.