“The tightening of first charges in areas around affordability [and] lending into retirement has meant certain customers cannot raise money so second charges are the next best option,” he says.
One of the biggest changes under FCA regulation has been to the way fees are levied in the second charge space.
Mr Dyason explains: “The change to regulation meant a move from a situation where the only fees chargeable were at completion, so those successful in getting a loan had to carry the fees for all applications to a place where each application can pay for its own valuation and legal work, offering a path to much lower fee levels for clients and risks for the broker firms transacting.”
He believes the main driver of growth in the market from now on will be greater understanding in the broker community and a wider roll out of lower fee options.
Mr Harness suggests mortgage intermediaries want to do well by their clients, and find the best rate they can.
“But when a mortgage intermediary sees a master broker layering in a £5,000 fee for arranging a typical £65,000 loan, it tends to become a moment of truth.
“To put this into context, the £5,000 master broker fee for setting up the deal is roughly the same as two years’ worth of interest (on £65,000, at 3.83 per cent annual interest rate). So what’s the point in scouring the market for the best deal, trying to shave another few extra basis points off the rate and then charging a fee north of 7 per cent?” he queries.
“A mortgage intermediary could be excused for concluding that an ‘ERC mortgage locked’ client could simply use the £5,000 to pay the ERC on their mortgage, and then have the freedom to remortgage.”
The Loans Engine has been one of those to offer the “fresh ideas and criteria” Mr Williams says has helped the second charge market.
Mr Harness explains: “A couple of master brokers (like The Loans Engine) have scrapped the traditional master broker fee for intermediary clients and replaced it with an application fee of £295. Mortgage intermediaries will recognise this as more akin to remortgage fee costs.
“With a £295 application fee, 3.83 per cent pay rate and deals underwritten in as little as week, a second charge can now be a credible option for capital-raising customers.”
Most in the industry agree it is awareness which will spur the growth of this market over time.