If I were to analyse the effectiveness of the millions of pounds I have spent, over 15 years — on regional account managers and multi-channel marketing campaigns — in driving the education piece in the second charge sector, I would probably place a question mark around the full success of those campaigns.
When working at a bank in 2001, my role was asking brokers to refer their leads direct to lender. That was the way for the 60 or so GE Money business development managers to achieve their target of — wait for it — £75,000 per quarter in lending.
And it wasn’t a slam dunk. When you look at today, where our average second charge loan is near that figure per unit, you start to question the struggle.
If any of these objections resonate with you, call me
The problem was the profile of the product. It was regulated by the Office of Fair Trading, and the client did not have the standards of protection and the fair processes enjoyed today under the supervision of the Financial Conduct Authority. Rates were systemically double those of their first charge counterparts. Brokers were sceptical of the product, and possibly of the sleazy salesperson asking for the enquiry.
I launched Positive Lending to offer more value to brokers. How about a whole-of-market panel of lenders, an advice service, decent commission, fair and transparent fees to your client, and ancillary products to complement this part of our product range?
I have bad news if you are an independent mortgage broker. You are not whole of market in this sector; not even close
It’s taken a long time to build what I have today — a firm that is respected and trusted by many. But, despite all this work and countless education pieces in the press and on the road, the same objections to this product materialise — and I find myself back in 2001.
So let’s dispel some of them right now.
Second charge rates are expensive
That depends on how you value the expense. If you are judging a rate of 8% today against a mortgage of 5%-plus, the numbers alone would create that headline.
But what if you are capital raising and a small amount of extra borrowing is required, and the rate is still sitting at sub-2% on their main mortgage? Review the total cost to the client in not remortgaging and arranging funding until a new remortgage review is due, and roll your second charge loan into the remortgage.
Did you know the income multiples are considered more generous, a survey may not be required and there are no legal processes to release funds?
It is wise to speak to experts about the practicality of this; it’s not designed to be short-term funding.
Packager fees are expensive
A piece was released by another publication recently about the average second charge fee, slating the market for extortionate fees as a standard practice in this sector. That’s not true. Our average fee is just under 2% of the loan advance for processing the loan, absorbing cancelled loans and paying introducers and other third parties.
The product has attractive qualities you may not see in the mainstream market
As a mortgage broker I doubt they would accept a mortgage application where you paid for the full processing of the loan, including the mortgage valuation.
But this is offered by the majority of the second charge market at no additional cost to the client beyond the fee payable at completion. There is a spectrum of fee charges to clients from packagers and your role as a broker is to find the ones you feel charge a fair fee for their services (hands-up emoji here, please, Ed!).
I wouldn’t use a packager and would go direct
I have bad news if you are an independent mortgage broker. You are not whole of market in this sector; not even close.
In the second charge world the larger players work with specialists only. This is due to the fact the case processing is not similar to a mortgage or refinancing; it is underwritten and involves upfront expenses before a lender will review the case. And why would they spend millions educating 20,000 brokers when they can let me spend my millions to do that for them?
Despite all this work and countless education pieces in the press and on the road, the same objections to this product materialise
Lenders want quality cases and could not handle the volume if brokers were attempting something that was not their regular expertise. It’s costly and doesn’t work. Lenders such as Nemo Personal Finance, Paragon, Precise Mortgages and Shawbrook tried this proposition, and none of them are in this sector today.
I don’t like the product
Why? It’s the same as a mortgage. It’s regulated in the same way and performs for the client in the same manner. And it has attractive qualities you may not see in the mainstream market.
Second charge rates are expensive? That depends on how you value the expense
Did you know the income multiples are considered more generous, the criteria around debt consolidation are not restricted by our lenders, a survey may not be required and there are no legal processes to release funds? That means your client can fund within 24 hours of offer if they like!
I could go on but, if any of these objections resonate, please read this piece again. Then call me.
Paul McGonigle is chief executive of Positive Lending
This article featured in the September 2023 edition of MS.
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