Knowing your audience - taking time to look at second-charge options

When it comes to explaining financial services products, there is a fine line to tread. In one breath, we want to ensure that potentially complex situations and product features are understood and therefore there is the need for simplicity and plain English, and yet we also want to ensure that we do not bring that complexity down to the lowest common denominator, and somehow twist the product pros and cons out of shape.

Related topics:  Specialist Lending
Steve Harness
9th June 2017
Steve Harness The Loans Engine
"There is clearly a job still to be done by pushing out a stronger message which says there is no greater risk with a second-charge mortgage than there is with a remortgage"

With a product like second-charge mortgages, I feel we have tried to develop this understanding, but sometimes we’re not helped in that endeavour. Take the recent increase in second-charge lending in March, which was seized on by some of the national financial press as proof-positive that borrowers were somehow gorging themselves on more and more debt, and that second-charge mortgages were to blame, and somehow not the right fit for them.

In these days of FCA regulation of seconds, affordability assessments and tighter underwriting, this feels a misrepresentation of the facts, and one has to be concerned that articles like this taint the product and hinder advisers, when convincing clients that seconds could be the most suitable product for them, especially when this is tangibly the case. We would hope that clients would take the advice of their adviser in these situations regardless, but there are bound to be a number who have read such reports and protest, “I don’t want one of those second-charges”.

Of course, advisers would not recommend a product unless it was right for the client, but when it comes to dealing with a client who is so vehemently against a product – based on their national financial press understanding – then the temptation has to be to take the line of least resistance, and maybe look at a straight remortgage. Again, even if this isn’t necessarily the most appropriate product for that client.

In terms of understanding the risk that comes with seconds, there is clearly a job still to be done by pushing out a stronger message which says there is no greater risk with a second-charge mortgage than there is with a remortgage or further advance, or an unsecured loan.

Looking at some other statistics from the FLA, which were recently published, it’s pleasing to see the number of second-charge repossessions at incredibly low levels. For the first quarter of 2017, just 17 repossessions took place for the whole second charge sector, which is 50% down on the same quarter in 2016, and again appears to endorse responsible lending practices.

Second-charge customers are not only respecting their personal covenant, but it’s also the case that lenders operating in this area are now working far more effectively to help customers through any short-term payment difficulty. This is clearly a positive step for the sector, and all those who work within it, and one might say that it’s a message that advisers should be delivering to clients who might be concerned about a second-charge provider, who they may not necessarily have heard of.

I’ve talked before about the journey that the second-charge market is on, especially given the changes that have taken place in the sector over the last 12-15 months. It was always going to take time to bed into this new environment, and there were always going to be challenges in terms of both adviser and client education.

However, slowly but surely, the lending figures are showing encouraging signs that there is a growing understanding and a much more informed look at the second-charge option, particularly from first-charge mortgage advisers, who recognise that a straight remortgage might not be the best option for every single borrower.

In other words, we are getting there, and I expect further progress to be made throughout the course of this year and beyond. It’s vitally important to ‘hang on in there’ as a sector, and to encourage more advisers to take the time to look at the second-charge options – they might be pleasantly surprised at the changes which have taken place (rates from 3.73% and £295 fee).

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