"Even now, I still meet advisers who simply won’t countenance high master broker fees and say they wouldn’t touch second-charges “with a bargepole”, which is a great shame"
When you’re talking about unravelling the UK from the EU and working through all manner of rules and regulations that have their source in Brussels, it’s perhaps unsurprising that we’re hearing about a timescale of years rather than just months. The fact that we have yet to invoke Article 50, and there seems to be a hesitancy about doing this, tells you everything you need to know about how firing this particular starting gun will impact on the Government and everything it does next.
The impact of the EU on all our lives has been considerable over the last 40 years – take financial services, for instance, and you have a perfect example of how the rules and regulations we abide by are both a combination of those from European institutions and our own Government/regulators. Indeed, take the second charge market as an example. The implementation of the European Mortgage Credit Directive created the perfect opportunity to absorb second charges into MCOB.
To say this was a game changer for the second charge market would be an understatement. The MCD has created a requirement that mortgage advisers at least acknowledge the existence of second charges as an alternative to the traditional remortgage and their absorption into MCOB allows second charge brokers to relook at their fee models.
Prior to the implementation of the MCD, master brokers have operated along the all-encompassing master broker fee model, simply because to do anything else was pretty much commercial suicide. The challenge we faced was, that under the Consumer Credit Act, we were prevented from retaining any fees greater than £5 on cancelled applications, which meant that we were on the hook for all the costs of an application.
Those customers who completed their applications and drew down their loans, and paid this all-encompassing master broker fee, were effectively subsidising those customers who cancelled mid-process. This may appear unfair but it was a commercial necessity given that we, as the master broker, had to pay for all the ‘sunk costs’ of an application, such as valuation fees, lender reference fees and operational costs. The £5 rule meant we couldn’t recover these sunk costs from customers who dropped out mid-process.
However, just because this was the norm pre-MCD, should it remain so in the ‘new world’? Well, from my perspective, I’m convinced that second charges as a product option for advisers’ clients would benefit from a fee model which is much more in tune with what happens in the rest of the mortgage market. Even now, I still meet advisers who simply won’t countenance high master broker fees and say they wouldn’t touch second-charges “with a bargepole”, which is a great shame, especially when you consider that a second-charge could well be a very suitable product option for some of their potential remortgage customers.
However, the suspicions that some advisers have about seconds – at FSE Manchester this year it was suggested that seconds were the ‘creepy uncle’ of the mortgage family – can be deeply ingrained. One wonders, therefore if the sector should be doing more, particularly in the area of fees. Some might suggest that to do this requires a focus and dedication that would probably match what may be required to extricate the UK from the EU, however on this occasion I believe it to be an exercise worth pursuing.
