Those of you who regularly read my column will know I am of the belief that mortgage brokers should not fear second charges because the sales process is so similar to that which they are already doing. With seconds being brought fully under the FCAs jurisdiction in March next year, they are simply being asked to add another product to their arsenal, not to change their whole way of business. The sooner intermediaries come to understand this the more willing they will be to embrace what is a useful and extremely functional product.
I stand by that belief wholeheartedly however while the sales processes are very similar they are not exactly the same. The reason for this is selling second charges often takes a degree of flexibility and thinking outside of the box that perhaps the more straightforward and obvious sale of a remortgage does not require.
But this flexibility is something that can actually be a very useful tool when selling any financial product or, to be more specific, when solving any financial conundrum. As the old, rather unpleasant, adage goes – there are many ways to skin a cat and when faced with a client with a more complex requirement (or indeed a requirement that seems straightforward at first but turns out to be more intricate than one expected) taking a flexible approach can be useful.
This doesn’t just mean employing the type of flexibility a secured loan broker is adept with (understanding which lenders will offer which concessions and taking a more bespoke approach with the customer) but also examining whether a combination of products may be the best option for the client.
By adopting a more flexible approach to selling and looking at the possibility of blended solutions – using a combination of commercial loans, second charges, firsts and bridging – you may find it much easier to meet your clients’ needs.
Let’s look at an example.
Your client is an employee of his own profitable limited company, owns his commercial premises via his pension, plus owns three buy-to-let properties and has his own residential property with good equity.
He now wants to raise £250,000 to fund a separate business opportunity which is needed for a short term and £50,000 to repay some personal debt.
Where does an advisor start with so many options available?
He could remortgage his commercial premises, although this would depend on the value of the commercial building, the performance of the business financially and how long that they have traded, who actually owns the building, and whether there are any benefits or restrictions of lending through his pension.
He could look at a bridge option for the new business opportunity. The broker would have to discuss what the new opportunity is, what security is available and how long the short-term funding would be required for.
An unsecured limited company business loan could work depending on how many directors and involved, how long the company has been trading and its profitability and credibility.
If the broker looks at a second charge over the main residence he’ll need to find out who the first charge lender is, the mortgage amount outstanding, the value of the property and, of course, do an income affordability assessment.
To take out a second charge or re-mortgage on the three existing buy-to-let properties the broker will need to know the rental received per calendar month and of any possible restrictions on LTV.
A straightforward first charge remortgage on the main residence is also an option depending on the mortgage amount, the value of the property, the terms of the existing first charge and the client’s affordability.
The point is sometimes there is no perfect solution. Sometimes you can make a round peg fit a square hole. Sometimes you need glue, gaffer tape and six inch nails. Just don’t give up if the first and easiest solution doesn’t work. Ask more questions, consider other solutions and get an expert involved.
Don’t worry, this doesn’t mean you’ll need to be an expert in every specialist sector. You simply need to ensure you partner with the right firm – one which has multiple product lines and can help to put together a package to solve your client’s problem.
The more adaptable you’re able to be, the more likely you are to find the right solution for the client. And at the end of the day that’s what really counts, isn’t it?
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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