Do you want to stay ‘whole of market’ & ‘independent’?
‘whole of market’ & ‘independent’?
Are you a ‘whole of market’ broker? If you are it’s no doubt a label you want to keep hold of however in just four months’ time you could be at risk of losing it.
The regulator has confirmed that, come March 21st, any broker that only advises on either first or second charge mortgages, rather than both, will not be able to call themselves independent or use the word independent in their company / trading name.
The reasoning is, with both firsts and seconds coming under the same mortgage permissions, if the broker chooses to offer advice on only half of these products they cannot justifiably call themselves ‘whole of market’; they are not advising on the whole of the market, they are simply focusing on a section of it.
I have spoken many times about the need for mortgage brokers to embrace secured loans. The fact that these loans can – and often do – offer a better solution than a remortgage is reason enough to ensure you’re including them in your product offering. Then of course there is the regulatory aspect. One can hardly claim to be adhering to the regulator’s Treating Customers Fairly initiative if he is disregarding a product that might be the best solution for the client.
Brokers who have appeared reluctant to include seconds in their offering (and there are a lot more than you might think, including many big name brands) have the option of simply referring the client to a loan broker. That is, the broker can simply acknowledge that a secured loan exists and could be a better option for a client but make it clear that he does not offer advice in this area and can only signpost to someone who does.
This way you are making your client aware that a second charge loan may be the best option but, equally making it clear, that you are not in the position to advise on it.
This option still exists, of course, and may well be the option many brokers choose to take but until recently some implications of doing this have been a little fuzzy. By acknowledging the existence of seconds the broker is doing enough to stay within the FCA’s regulatory guidance but, as has now been made clear, the impact on their own business and the way in which they market themselves, will be significant. If a broker explains that seconds are beyond the realms of their advice and refers the customer to a loan broker it must be made explicitly clear that the loan broker is now wholly responsible for their advice. This removes much of the liability from the mortgage broker but also his ability to market himself as whole of market.
To retain the ‘independent’ label a broker will need to be willing to advise on both firsts and seconds.
So what now?
Firstly, decide what you want to do. The regulator has stated it will be contacting firms in the next couple of months to find out their intentions when it comes to seconds. If staying independent is important to you you’ll need to resolve to advise on seconds now.
Secondly, don’t panic. Modifying your sales process in order to advise on second should not be too difficult. What will be key will be partnering with a firm which is geared to act as both a master broker and packager of seconds.
If the firm offers a full packaging option to brokers this should give them the information and underwriting expertise they need at the outset to allow them to own the advice process as well as supporting them through this process, with compliance help and prompts.
At Promise we have offered the packaging option for many years and most DA’s prefer to own the sale and select this route either on an advised or non advised basis. We already guide brokers with a compliance checklist to ensure all of the right questions are asked at the right times as well as prompting the broker if we think something has been missed so switching to a fully advised sale will cause them little drama.
By partnering with such a firm you will be able to advise on seconds with the peace of mind of knowing you’re getting it right, and, as such, maintain your independent, whole of market status.
Remember, there is a clear difference between a referral option and a packaging option. The regulator will expect the latter from a whole of market broker. Many loan brokers only offer the referral option and while this is certainly a good route for those brokers who want to have as little to do with seconds as possible, for those brokers who value their independent status partnering with a loan broker that offers a packaging service is vital.
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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