Though it’s not the most pleasant thing to acknowledge, as a magazine contributor, it’s certainly the case that a large majority of people will only read the headline of a news story or article.
To confirm this theory, a recent study by Columbia University and the French National Institute found almost 60% of links shared on social media have never actually been clicked. People are sharing stories in earnest without ever having read them.
As a result it’s fair to say that a lot of us are misinformed about a lot of things.
Allow me to give you an example. Let’s say a journalist in the consumer press was to write an article on the likelihood of another credit crunch before the year is out. Every person she speaks to for the article gives a definitive “no”, and the journalist, rightly, quotes them as such. The editor, however, attaches the headline “Are we heading for another financial meltdown in 2018?” Instead of the emphatic no, millions of headline readers now worry another credit crunch is on the cards.
This is something I’ve witnessed of late in the second charge market where the headlines are at odds with what’s really going on.
We’re all well aware that the seconds market has not always had the best reputation. A combination of dated products (long since replaced) and misconception and confusion surrounding fees have meant some brokers within our industry have not always had the best or clearest view of the second charge sector.
That has, of course, changed significantly in recent years. Since the Financial Conduct Authority took hold of the reins of regulation for secured loans and consumer credit – and, indeed, in the run up to it doing so – we have seen huge improvements in both awareness and perception of second charge.
This has been helped in no small part of course by the innovation we’ve witnessed in product development with lower rates and more flexible criteria. We may not be quite where we’d like to be yet but we’re seeing improvements none the less.
So with headlines such as ‘FCA slams second charge’ or ‘Regulator accuses seconds of letting the side down’, anyone could be forgiven for thinking the worst.
But the headline doesn’t tell the whole story and, if as research suggests, the rest of the story is not being read, then we are at risk of putting out a wholly negative view of a market that has actually come on in leaps and bounds.
Let’s take the recent review of second charge lenders carried out by the FCA. Judging by the headlines, it didn’t go well but we need to know the detail before assuming there is an industry wide problem. Yes one lender made some swift changes but talk to others and they are confident they are in a good place with some tweaking possibly needed rather than a complete rethink.
We should welcome reviews such as this as it shows us where to improve. Let’s not forget the FCA’s thematic review on mortgage advice and distribution in 2015 – Plenty of room for improvement for many mortgage brokers on what should have already been core skills learned over many years. But that didn’t mean the industry was bad.
Then we have a small number of pundits banging on about high second charge fees. Whether this is for self promotion or for the benefit of the industry I’ll leave you to judge. But the facts behind the headlines are that most master brokers and packagers have dramatically reduced the fees they earn and they are definitely not making mega margins off the back of second charges. It’s a comparatively low volume industry and margins are tight with no cross sell opportunities and no lifetime ownership of the client relationship. There will always be firms charging more whilst they can get away with it but that’s no different to the first charge sector. And don’t be surprised if these firms are largely supported by introducing mortgage brokers who support higher fees because they get a larger income split on each case.
Don’t get me wrong; I am by no means suggesting that the market does not have some way to go but broad stroke headlines that make a story seem bigger than it is are of little benefit to anyone. The industry suffers because of negative perceptions; the headline reader suffers through being misinformed.
There is plenty of choice where the fees are reasonable and you still get a great service so choose a loan partner which is consistent with your model. Ignore the outliers. The lenders are generally doing a great job, offering flexible and innovative solutions for your clients and improving all the time. So don’t get sucked in by the headlines and let’s no be too quick to criticise an entire market. Not after so much progress has been made.
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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