2016 was always going to be a challenging year for seconds, was it harder than you expected?
It panned out differently to how we expected. The challenges of implementing an MCD process within the business gave no great cause for concern. However the impact of MCD on the market was unknown and our forecasts were for conversions to reduce, retained income per completion to reduce and for costs to rise. The latter two predictions were spot on.
We expected these factors to be offset by an increase in volume as mortgage broker’s followed FCA guidance and engaged properly with second charges. I don’t think it was unreasonable to expect a noticeable increase in second charge enquiries post MCD.
As it turns out, contrary to expectations, the market has not increased in size and conversions overall have remained strong or improved. The market doesn’t yet benefit from the economies of scale enjoyed by first mortgage brokers and needs to grow significantly if brokers and consumers are to benefit from more choice, a higher quality service from every provider and more competitive pricing.
The fees debate has been big news this year, has this died down now?
It has died down but it will rumble on. At the moment there is an imbalance between those firms which have moved to an MCD friendlier model and those which are protecting their P&L by still charging 10% completion fees irrespective of the costs or loan amount. Fees and costs also need to be dealt with transparently and I hear horror stories about some firms charging high fees and fabricating their costs to retain more income. Firms can justify a reasonable fee for a job well done. They can even justify a very low fee for a more automated light touch service if that’s what brokers want. But those adopting an intentionally dishonest approach should be exposed by brokers, clients or lenders who suffer at their hands. However, that’s easier said than done.
Has MCD had an overall positive or negative effect on the sector?
Post MCD, borrowers are mostly getting better deals and better outcomes but I suspect some firms are leading the way and others are clinging to old practices for as long as possible. The overall effect has been positive for the sector but there is still some way to go before the entire sector is on the same page. That applies to both established second charge brokers and mortgage brokers yet to embrace seconds.
What will be the biggest issues for second charge in 2017?
The proposed affordability changes to BTL will have an impact but I can only see the quality of the firms and advice given by the sector improving. The biggest remaining issue will be the take up of seconds by the mainstream mortgage broker industry.
Are you expecting business levels to grow next year?
Yes I think business levels for the industry will grow gently. I naively expected to see a surge following MCD but can’t now see that happening until the regulator provides even greater clarity and examples of how it expects mortgage brokers to deal with second charges within individual businesses.
What are you plans for Promise in 2017?
Promise made a decision to avoid tick box underwriting and to strive for detailed underwriting by experts which results in better outcomes for brokers and their clients. We plan to broaden the scope and improve our services further with continued growth across second charges, complex first mortgages, bridging and commercial mortgages offering high quality solutions to specialist lending issues at a fair and transparent cost. Rather than play a numbers game we intend to forge stronger relationships with selected brokers who want well considered and quality service for their clients. The changes we have made in 2016 put us in great shape for 2017.
Interview with Steve Walker, Managing Director, Promise Solutions
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.
If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. 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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