Are advisers using master brokers?

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Enterprise Finance
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Supported by
Enterprise Finance
Are advisers using master brokers?

Instead, many advisers will turn to a master broker to help with a query related to second charges.

Mark Dyason, managing director at Thistle Finance, explains the reasons for turning to a master broker.

“Most brokers are still using master brokers to access the second charge lender. Master brokers have the contacts, understanding and structure to place and complete cases efficiently – this is a regulated transaction so it needs to be done from a position of knowledge and confidence in the advice given,” he says.

Harry Landy, managing director at Enterprise Group, explains: "Second charges do have differences compared with a first charge, and are typically placed with specialist lenders rather than the high street.

"That means it can be as simple as a phone call to refer a client to the master broker, whose team – with their lender relationships and IT systems – can complete the case efficiently and with the best outcome for the client."

Educating brokers

Even after some of the important regulatory changes to the market recently, which have aligned second charge lending with first charge mortgages following the introduction of the Mortgage Credit Directive (MCD) last year, it appears there is still a need for master brokers in the process.

There has been a wider roll out of direct-to-lender options for brokers looking to develop this part of their offering, and regulatory demands about investigating seconds as a route during capital raising at remortgage should offer more business to the sector.Mark Dyason

Mr Landy adds: "MCD implementation certainly grew awareness of second charge mortgages. Brokers must at least consider them as options. However, there’s more to do in educating brokers about the circumstances where a second charge might be a better option than the regular first charge options of a further advance or remortgage."

There are signs this is changing as awareness of second charge lending gains some momentum.

Mr Dyason observes: “There has been a wider roll out of direct-to-lender options for brokers looking to develop this part of their offering, and regulatory demands about investigating seconds as a route during capital raising at remortgage should offer more business to the sector.”

But he acknowledges for some advisers, the best option remains relying on master brokers, leaving the adviser to specialise in other areas.

“Also because of changes ever present in the mainstream mortgage field and especially buy-to-let, some brokers are still happy to hand on to a master broker expert for the second charge loans where appropriate, and specialise in the areas the majority of their own business is in,” he adds.

Without much demand for second charge lending, there is little incentive for advisers to brush up on their knowledge of the market as part of their offering and as long as advisers fail to attain any knowledge, then clients will remain unaware of the market, according to commentators to this guide.

Early days

Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association (FLA), says the majority of new business continues to be originated in the second charge broker market. 

“However, the past 12 months have seen a slightly broader range of brokers beginning to consider second charge mortgages as an option when advising clients. 

“It is still early days but this trend looks set to continue as more brokers and consumers understand how second charge mortgages can be used,” she notes.    

Why do some advisers know so little about the market and is this likely to change?

Advisers’ knowledge of the second charge market is a “mixed bag”, according to Peter Williams, sales director at mortgage adviser John Charcol.

“A large number just refer to a second charge broker, some will use a packager but advise themselves and some will go direct,” he explains.

I would like to see more regulation in the second charge market and for the process to be as simple as arranging a first charge mortgage.Joshua Gerstler

“There are still a huge amount of advisers that do not look at or consider second charges and this needs to change.”

It could be the case though that some advisers are assuming a certain level of knowledge about the market.

This is something Steve Harness, commercial director at The Loans Engine, believes is happening all too often, which is neither good for the end client or the broker/adviser.

He warns that by shunning the second charge market, many mortgage intermediaries “could be walking a dangerous path”. 

“They tell us, quite rightly, that in most instances it’s cheaper to remortgage than to capital raise through a second charge. But when you ask how they evidence that a remortgage is cheaper, invariably the answer is, ‘I just know it will be’,” he says. 

“This may not hold water during a compliance audit, where the general mantra remains, ‘if you don’t have the evidence, it didn’t happen, and you didn’t do the research’.”

Many in the industry believe there is still some way to go before advisers’ knowledge of the market catches up with that of master brokers.

Joshua Gerstler, financial adviser at The Orchard Practice, uses a master broker for its second charge lending. 

But he suggests the fee charging structure used by many master brokers is opaque. “I would like to see more regulation in the second charge market and for the process to be as simple as arranging a first charge mortgage,” he urges.

Any progress here may appear to be slow, although if there is suddenly significant demand for second charge loans then there would need to be a much quicker reaction from the industry.

Raising awareness

Andrew Fisher, managing director at mortgage broker Freedom Mortgages, admits awareness and understanding of second charge mortgages is still relatively low, yet he does see this changing. 

“Second charge lenders and brokers are investing time and resources raising awareness in the first charge market in how second charge mortgages are in some cases a viable alternative to remortgaging. 

“As advisers realise the advantages of secured lending and the competitive edge it can offer, I expect that awareness will increase and we will see a lot more advisers and brokers adding it to their arsenal,” he predicts. 

For those advisers already advising on second charge lending, there is clearly a push to offer it as an alternative to remortgaging.

“The advisers looking at second charges are doing a great job for their customers,” Mr Williams adds. 

“I think you have a mix of using it to give best practice and a number of people use second charge lending as a way of raising capital if a first charge isn’t an option.”

eleanor.duncan@ft.com