Mortgages  

DAs offer second charge to stay independent

DAs offer second charge to stay independent

Eight out of 10 directly authorised mortgage advisers are opting to provide advice on second-charge products themselves and retain their independence, according to data collated by The Loans Engine.

During the first week new European Union Mortgage Credit Directive rules were introduced - bringing second-charge mortgages under Financial Conduct Authority regulation - the specialist finance broker collected information on the enquiries it received from directly authorised firms and advisers.

It revealed the majority opted to provide the advice themselves, retaining their ‘independent’ status.

The Loans Engine suggested the popularity of the ‘package-only’ model being used by a large number of DA firms may surprise much of the master broker market, who may well have prepared for more advisers to introduce and refer clients, rather than provide the advice themselves.

The firm’s chief executive Ryan McGrath said he had forecast there would be many more DA firms who would feel uncomfortable referring their client on, and would instead opt to deliver the advice.

“The lure of maintaining ‘independence’ appears to have proved incredibly strong, as has being able to deliver a whole of market offering, and DA firms are clearly not going to give up on this lightly.”

Robert Sinclair, chief executive at the Association of Mortgage Intermediaries, called the results interesting.

The proportion of brokers acting independently was more than many would have previously forecast, he said.

“It’s a truism that most networks have taken over the management of the second charge stuff, while DAs value their independence, but there’s an undercurrent of those passing business on to master brokers.”

From 21 March brokers have had three choices in regards to second-charge loans.

“They can decide to fully advise on second-charge loans themselves, not advise on them at all, or refer their clients to a third party. If brokers choose not to advise on them at all, they will need to bring this to their clients’ attention so they are aware that it is still available as an option,” Legal & General Mortgage Club’s director Jeremy Duncombe said.

Under the MCD, the rules under which brokers can refer to themselves as independent have also changed, with advisers only able to refer to use the term if they advise on every area of the market in which they operate.

The FCA’s technical mortgage specialist Keith Hale previously warned: “For those in the first charge market, firms must do a proper walk through of their systems and processes, brokers need to look at their service and product disclosure, as well as remuneration - no sales targets - and also ask whether they will restrict their ranges to first or second charge?”

peter.walker@ft.com