"Unless you’re an intermediary with the same level of competence, experience and access that you can get from a top-level master broker, you’re much better off ‘sticking to your knitting’ and referring the client on"
So, understandably, if you’re a first-charge mortgage intermediary coming to seconds for the first time, you’re going to want to know why the process appears to be somewhat different to what you are used to. This has led directly to acute levels of interest in the scale of fees charged by master brokers, and also the ability of master brokers to access all the products in the marketplace. The wrong fee or the wrong rate could cost clients many thousands of pounds more over the life of the loan, than they should pay.
This is why fee-charging is currently the hottest topic in the second-charge market, and its why (some would say fairly) that the level of fees charged has come in for such criticism. How can the sector justify the charging of thousands of pounds in master broker fees which, when added to the loan, mean that clients are paying much more in set-up costs for their second-charge mortgage than they would ever pay for a remortgage?
The answer of course is that this is a legacy from CCA regulation, when a broker arranging a second-charge was unable to retain anything more than £5 as an up-front fee for their work. Effectively, the master broker had to pay for everything until they could recoup that money at completion; unfortunately, it also meant that aborted transaction customers paid nothing, so we had a situation where clients who completed loans were effectively paying larger fees to cover the costs of those clients who didn’t complete.
Not an ideal state of affairs and one which, under the new regulatory regime, will not be justifiable forever. This is why The Loans Engine has chosen to remove our all-encompassing master broker fee. We still provide free advice and sourcing, but just charge a flat £295 application fee, if the customer decides to proceed. It’s providing many benefits to clients, not least a huge saving and it’s an approach first mortgage intermediaries are comfortable with and has received a really positive reaction.
However, we appear to be alone in making this change, which means we have a rather large divide in the market now, with one, maybe two peers, offering flat fees, another couple putting maximum levels on their fees, but others continuing to charge just as they did pre-MCD.
Unfortunately, the expectation of high master broker fees is putting off intermediaries and some are now attempting to carry out the second-charge advice work themselves. Now, you might say, ‘Well he would say this, wouldn’t he’, but it’s a point worth making anyway that seconds are a complex beast to underwrite and they require experience and understanding, plus of course a whole of market lender spread, sourcing capabilities, and strong lender relationships.
It makes for a very difficult task for those new to the seconds market trying to do it themselves and work direct with the lenders; indeed, this is why many networks have opted to use a panel of master brokers rather than allow their AR firms to carry out the seconds work themselves. The networks see the customer outcome risk as just too high, and have opted to head this off at the pass.
Think of what it could mean for the client as well. On a typical £50k second-charge mortgage, choosing the wrong lender at a higher rate than the customer actually qualifies for could cost them many thousands in additional interest, even more if they’re using a master broker charging an all-encompassing fee.
I read recently that one mortgage intermediary does it herself, and rings around a few second-charge lenders to see what they can do and charges her client £700. Instead she could come to The Loans Engine and let us research the whole of the seconds’ market for only £295, and she can still earn the same as she did. And the client could end up with a much lower rate and save thousands in interest costs over the term of the loan.
In this sector, unless you’re an intermediary with the same level of competence, experience and access that you can get from a top-level master broker, you’re much better off ‘sticking to your knitting’ and referring the client on, or alternatively engaging a second charge broker for sourcing and packaging. However, as we’ve mentioned above, you do need to think about the fees being charged by various master brokers and, in my opinion, you have a distinct choice between flat or traditional fees. Now second charges are under MCOB, we’ve been able to take a new look at fee-charging, and this gives intermediaries confidence that they’re getting the best deal for their client.
Can the intermediary be so confident about getting the right deal and outcome, if they’re attempting to go direct, or if they’re using an ‘old school’ master broker? I very much doubt it, and one can also assume that the FCA will be taking a keen interest in how intermediaries get seconds to their clients, the number of lenders they use and the level of fee costs. Intermediaries will need to be able to justify why they opted for one master broker over another, particularly if they have wildly different fee models.
Seconds certainly provide a strong opportunity, but the advice proposition has to be right – my guidance to both firms and networks is to make sure they are using a master broker who has left behind the traditional second-charge fee model born out of CCA regulation, and instead use one which has embraced the opportunities presented by MCOB.
