16

When a client has a new-build holiday home developer, his existing

lender and his wife all putting the pressure on, it might be time to take
a look at whats on offer in the second charge loans market

ts not a headline you would expect to

read every day of the week, but it is fair
to say that for one of my colleagues, a
second charge loan has been the difference between severe matrimonial distress
and continued wedded bliss.
We often talk about the difference
second charge loans can make to peoples
lives, especially when many borrowers are
facing a tough lending environment with
increasingly stringent lending criteria elsewhere. A second charge loan offers a solution for those who might in the past have
assumed their existing lender would provide any additional or refinance funding.
The MMR has created a challenge even
for those lower risk, credit-worthy borrowers who have spent all their lives meeting
their first-charge mortgage repayments.
My colleague and his wife certainly seem
to fit the bill, but a perfect storm of individual, regulatory, market and economic conditions now ensure they are categorised
differently to how they were pre-MMR.
The couple have reached a stage in
their lives 50-plus where they want to
purchase a holiday home. After an unblemished credit/mortgage record, with plenty
of equity in their current property and no
other debts, you would think a call to their
existing lender would be all they needed
to do. But this is post-MMR and there are
now what their existing lender might call
mitigating circumstances.

For example, the couple have an interest-only mortgage and the first-charge
lender is prescriptive about repayment
vehicles. Money in a fixed-rate cash ISA?
Not good enough. Money in a stocks and
shares ISA? Maybe okay. What about a
lump sum from their pensions, given their
mortgage term ends at their retirement
age? The lender requires a fund valuation based purely on accrued premiums to
date, with no further premium or investment growth. It takes four weeks to get a
valuation which the provider is unfamiliar
with and then another two to arrange a

TICKING BOXES

There is little point dwelling on how we got

to this point. Despite many first-charge
lenders now operating a more flexible
approach to their post-MMR borrowing/
affordability decisions, the fact is that these
type of problems come up all too often, in

this tick-box world. While the MMR was

completely justified, there has been an
over-egging of the regulatory and compliance pudding by some lenders indeed the
FCA has said this itself.
But this does not particularly help clients like my colleague, although there are
options available. The mortgage broker
who is unable to help the client with their
further advance might well be looking at
the full remortgage option to free up the
equity. However what about clients like my
colleague who would have to refinance at
a far higher cost and would lose a firstcharge lifetime tracker product which may
be working perfectly well for them both
now and in the immediate future?
Here is where the second charge loan
option should become present in the mortgage advisers service proposition armoury.
At the very least, it is time for advisers to
become familiar with the second charge
loan option. In addition, the changing regulatory position for the products and those
offering them, the new breed of providers
active in the marketplace, the advances
in technology and more competitive pricing have resulted in second charge loans
becoming a much more cost-effective
option than many realise.
First, we have the regulatory changes
that will be implemented in varying degrees
from this month onwards. The transition
began when the FCA took over responsibility for second charges from the Office
of Fair Trading last year, and MCD implementation will move them from CONC to
MCOB, which is good for the industry, the
customer and the mortgage broker.
It certainly allows businesses like ours to
help intermediaries develop their own second charge loan proposition. This should be
a priority given that the MCD means that
when discussing a capital-raising remortgage, mortgage brokers will need to make
their client aware that a further advance, a
second charge loan or an unsecured loan
may be more appropriate.

GUIDE TO

Second Charge Loans

RYAN
McGRATH
Chief
executive,
The Loans
Engine

Second charge loan

saved my marriage

direct further advance interview. Plus, to

be an acceptable repayment vehicle, the
pension pot needs to be 1m (to generate
a 250,000 lump sum), or if an occupational pension the lump sum needs to be
250,000, regardless of the mortgage size.
It is becoming ever more complex, especially when you add the pressure being
applied by the new-build holiday home
developer who wants everything signed,
sealed and delivered far in advance of those
timescales, and cannot understand the
delay. That holiday home dream appears to
be getting further and further away and my
colleagues wife is beginning to lose faith in
the first-charge lender, the mortgage industry and (dare I say it) her husband. This is
particularly galling when you consider
these are undoubtedly blue-chip clients
with an A1 credit rating.

The mortgagestrategy guide to Second Charge Loans 2015

The mortgagestrategy guide to Second Charge Loans 2015

17

This needs to be done at the initial disclosure stage and means that mortgage
brokers will have three options:
l They can give advice on all four product
options: remortgage, further advance,
secured, unsecured.
l They can tell their client they only cover
remortgages and they have chosen not
to access the loans market.
l They can refer their client to a partner
who provides access to loans.
Of those three options, I would suspect
that number two will be most unappealing
to mortgage brokers. After all, why would
a seasoned professional, utterly confident
and comfortable in this market, leave a client high and dry by not offering them loan
access especially where a remortgage is
not in the customers interest and where a
further advance is not an option?
Which may lead the mortgage broker
towards options one and three. However,
most mortgage brokers may feel more
comfortable utilising businesses such
as The Loans Engine and choose option
three. This decision holds a considerable
amount of merit, not least the technology,
confidence and stability we can provide.
Also, lets not forget the fact that in four
to six months time, advisers will be able to
secure second charge loan funds for the
client in as little as 48 hours.
Which brings us back to my colleague. A
man feeling the pressure from all sides a
new-build holiday home developer, his existing lender and his wife. Well, the good news
is that the second charge loan option was
not just available but easily accessible for
these borrowers, although even though he
works within the industry and his wife was
aware of the product as an option, there
were still some challenges to overcome.

SKEWED PERCEPTIONS

Part of this is the somewhat skewed perception of second charge loans that still
exists from many potential customers. My
colleagues wife still attributed some cau18

tion to second charge loans, a view from

a bygone day but still shared by some.
The fact is, however, that the sector and
the products have come on in leaps and
bounds in a very short space of time. Take,
for instance, the fact that headline rates
are touching record lows.
A year ago, we were seeing only 15
per cent of customers achieve a singledigit interest rate. Now, more than 50 per
cent of customers are offered a rate of
9% or less. Indeed, our lowest rate at 75
per cent LTV is now 4.45 per cent and for
buy-to-let second charge loans we are
looking at 5.79 per cent and 5.95 per cent
and the pricing pressure that comes with
ongoing competition and demand means
these rates are likely to drop further in
the short-term.
Ultimately, this is a new age for the
second charge loan market. These are
products, given the first-charge lending
environment, which are becoming increasingly appealing as a complimentary add on
to the mortgage, to mainstream borrowers
like my colleague, who I might add, managed to convince his wife that the option
was truly credible and the best route for
them in order to secure that holiday home.
He explained to his wife: Its a further
advance. Its just with a different lender.
Going forward, mortgage advisers are
going to need to make their minds up
about how they develop their propositions
for the regulatory changes that are coming, and the market ones that are already
here.
We would certainly recommend partnering with The Loans Engine, which can
offer that route to market through friendly,
knowledgeable loan advisers and cuttingedge technology, and with the necessary compliance checks and audit trails,
to make the second charge loans sector one worth accessing and ultimately
one that will provide a large number of
benefits to both the advisory practice and
its clients.
l
The mortgagestrategy guide to Second Charge Loans 2015

Contact Us
If you would like to find out more about how a second
charge loan can work for you, please give one of our friendly
and experienced Intermediary Operations Team a call on
0800 032 9595.
Alternatively, please visit our TLE website www.tle.co.uk,
where you will find our extensive product range and exclusive
rates.
About The Loans Engine
The Loans Engine (TLE) is a specialist finance broker. Its heritage is for
broking second charge and unsecured loans but it also offers bridging and
commercial finance. TLE has traded for 28 years, through two recessions.
TLE has a strong culture of regulatory compliance and best practice,
underpinned by customer-centric values and principles.
TLE arranges one in ten of all UK second charge loans. Its scale enables it
to access products and arrange loans that other brokers cant. TLE employs
65 great people with a combined market knowledge in excess of 700
years. All of whom are appropriately qualified, continuously developed and
understand the importance strong working relationships.
Since 2003 TLE has developed the most advanced loan sourcing technology
available today. This allows TLE to offer customers a true whole of second
charge market proposition and to compare second charge and unsecured
loans instantly, a true TCF based proposition.