Lenders concerned brokers dodging mortgage rules

Lenders concerned brokers dodging mortgage rules

Concerns have been raised that some brokers may not be meeting the obligations of the Mortgage Credit Directive in respect of second charge mortgages.

Two second-charge lenders – Together and Enterprise Finance – have expressed concern about a lack of awareness of the product among brokers.

Second charge or second mortgages have secondary priority behind a borrower's main (or first charge) mortgage.

They are a secured loan, which means they use any equity a borrower has in their home as security, and taking one out means the borrower will have two mortgages on their home.

For homeowners whose credit rating has gone down since taking out their first mortgage, remortgaging could mean they end up paying more interest on their entire mortgage, rather than just on the extra amount they want to borrow.

A second charge mortgage could be a cheaper option.

But Gary Bailey, sales director at Together, said his company’s research found 79 per cent of people in the UK were completely unaware of second charge mortgages.

He said: “With the introduction of the Mortgage Credit Directive there was a requirement that intermediaries need to make customers aware that there are other products available.

“That, quite frankly, is not showing through at this moment in time if 79 per cent didn’t know what a second charge mortgage was but remortgaging is on the rise.

“It is not filtering through but it is disappointing the intermediaries have not recognised this opportunity.”

Under the Mortgage Credit Directive rules, which came into effect in March 2016, brokers need to decide whether they want to advise on second charge mortgages.

If they don’t, they will need to bring this to their clients’ attention so they are aware it is an available option, even if not one offered by that broker.

Harry Landy, sales director at Enterprise Finance, said: “There is a misconception that brokers don’t feel they have to consider second charge mortgages because they don’t feel they are dealing with sub-prime clients.

“There is a lack of understanding about where the marketplace is now. If you asked people about where the rates are they would say up to 12 per cent, because that is where it used to be."

Mr Landy highlighted second charge mortgage deals are currently available starting at 4.2 per cent.

He said: “Brokers need to be more open to considering it. There was an increase in interest when the Mortgage Credit Directive first came into play but I think it has gone off the radar and the FCA is not pushing it as much so brokers have slipped back into old habits.”

The Council of Mortgage Lenders said it did not have data on how big the second charge mortgage market was compared to the market as a whole.

David Copland, director of TMA Mortgage Club, said second charge mortgages were good for some people, such as those who have competitive lifetime trackers who don’t want to remortgage, but he said it was still an expensive option.