Second and subsequent charge mortgages have been key beneficiaries of the Mortgage Credit Directive, according to specialist broker V Loans, which has opened up the market and led to increased competitiveness for consumers.
In place since 21 March, the new EU-wide rules brought second and subsequent charge loans under the same regulatory regime , with the same advice process for both. This meant to remain independent, brokers now need to include second-charge in their scope of service
Data collected by The Loans Engine during the first week post-MCD found that eight out of 10 directly authorised mortgage advisers opted to provide advice on second-charge products and retain their independence.
But it has now found rule changes have improved the customer journey by removing some outdated customer protections, such as the 16 day cooling off period.
These changes have put second charge mortgages in a position to rival both bridging loans and remortgages, where speed is the driving factor, said the second charge master broker’s managing director Marie Grundy.
“We are still in the very early days of the new MCD legislation, but the benefits for the sector are already plain to see. Across the industry we are seeing some second charge mortgages complete within a matter of days once a recommendation has been made to the borrower.”
She pointed out that previously any material difference in the second charge offer, such as a change to the loan amount or lower than expected property valuations, meant the borrower had to go through a further cooling off period, “detrimental to those borrowers who were looking to meet specific deadlines to release capital from their property”.
Because a solicitor is not required in the vast majority of second charge transactions, in many instances it will be quicker than remortgaging and bridging, said Ms Grundy, as well as mitigating the legal costs often associated with bridging finance.
Ray Boulger, senior technical manager at John Charcol, said second charge lending is running at about £2bn per annum, with half of this from one lender, the government, through its Help to Buy Equity Share second charge mortgage.
“This compares with about £220bn per annum of first charge lending, about a third of which is remortgaging.
“Last month’s regulatory changes will give seconds more exposure, but will also tighten up some criteria. Whilst speed is always a consideration in selecting a lender, for most clients looking to raise funds it will not take precedence to getting the best deal.”
He said that whether that is a remortgage or a second charge will continue to be based on the same factors as before the regulation changed.
“The difference is that brokers who previously did not consider seconds now have to and as we see more convergence between the first and second charge markets, including in respect of the higher fees on most seconds, plus more choice in the range of products, a second charge is likely to be the best advice more often.
“However, it will remain a small market compared to remortgaging and it generally serves a different purpose to bridging,” added Mr Boulger.