In the wake of COVID-19 and the many changes the pandemic has brought to household incomes, work patterns and job roles, interest in the second charge sector and its ability to cater to customers with diverse and complex needs has increased.
To help first-time brokers operating in the second charge sector understand what the sector entails, how to become part of it and what to look out for, this blog will answer some of our most frequently asked questions posed to us from within our broker community.
What is the first thing brokers need to know about the second charge sector?
That it’s nuanced and very different to the first charge sector.
That is not to say it’s over-complicated, we simply fulfil a different need. Second charge mortgages tend to require more documentation and therefore packaging of applications is a key requirement.
There is an expectation from second charge lenders that brokers provide cases with all requirements fulfilled. That said, we are also happy to offer training and support to brokers new to the space. All of our Business Development Managers have a strong underwriting background and will spend at least 10% of their time in Head Office working directly with our Underwriting teams.
This approach means that the training they can give is up to date detailed and relevant. We are not trying to simply sell product, we want to help brokers package to a level that gives them the best chance of success.
How does the second charge sector differ from the first charge sector?
The big difference is that the purpose of the mortgage is obviously different. This influences the advice process.
Second charge brokers have a variety of possibilities to consider: should the second charge be fixed over the same term as the first charge? Does this create the best outcome when looked at holistically? If the loan is for debt consolidation, are you considering the total charge for credit alongside what the applicant is currently paying, and can you demonstrate the benefit?
Understanding customers’ goals over the short-, medium- and long-term is an essential part of offering second charge mortgages and vital to ensuring that the broker and lender working together can deliver the best possible outcome.
Are there any unique processes involved in the second charge sector?
A great example would be that as a second charge lender, we often need consent from the 1st Mortgage provider. This is not something that is required in firsts. However, this is just one example which brokers could encounter.
With the majority of our loans also being for consolidation, there is an administrative burden in obtaining the details to allow the lender to clear the debt directly. This needs to happen for the lender to be able to remove the repayments on the credit from the assessment of affordability.
How can brokers generate more second charge business within their existing network?
Being aware of the product is the first step.
Often, it will be a ‘Firsts first’ approach, which does not provide a level playing field. When compared alongside the option of a capital-raising first charge, there will be times where a second charge is clearly the best outcome.
I have no doubt that all brokers will have second charge business within their existing networks that are becoming Firsts, or worse still, being thrown away.
How can brokers become part of the Second Charge sector?
Firstly, identifying the need.
I would always suggest that any broker thinking about second charge mortgages for their customer first links up with an existing second charge broker and refers their leads on. This will give you insight into the type of business being generated, as well as the number and type of lenders that you are likely to need relationships with. It will also give a sense of the size of the opportunity.
What are some of the misconceptions that brokers have about operating in the Second Charge sector?
A number of first charge brokers remain hesitant around second charge mortgages due to the mis-held assumption that they are complex and only serve customers with adverse credit. Our experience is different to that. In fact, our customer base has a higher average credit score than that of first charge mortgage holders. The cycle times for a second charge will also point to the process being relatively straightforward.
Second charge products have evolved and, whilst there remain products for customers who have had previous credit issues, there are a huge number of products for prime customers and rates that reflect their status.
Second charge lenders will sometimes take a more pragmatic view than the high street. For example, the length of employment or the time an applicant has resided in their property, thus giving access to finance that they may otherwise be rejected.
If you want to read more about common misconceptions surrounding the Second Charge sector, take a look at my previous post that sets the record straight.
What are some key lessons you’ve learned from applications over the years?
That brokers need to fully understand and robustly challenge the information they are given.
Explore client explanations regarding credit history or affordability. Lenders are happy to work with brokers if they can understand the full picture. All loans have a comprehensive rationale for lending and the more the broker can assist in providing this, the better the outcome is likely to be in terms of speed of execution.
What advice would you give to a new broker navigating the Second Charge sector?
Firstly, accept the training offered and engage. Try not to assume that because you have worked in Firsts for a number of years Seconds is the same. Forget the misconceptions and form your own view.
Secondly, be patient. It is likely, as it is with anything new, that there will be missteps whilst you learn. Be prepared for these and work with and not against lenders.
Lenders in this sector want to lend but have to satisfy their own internal processes. Training and education — whether that’s a training session, a webinar, blog or vlog — will help you to understand what these processes are.
Do your research, find a partner first and build from there.
If you’re a first time broker in the second charge mortgage sector, and would like to learn more about how Pepper Money can support your customer case, contact Craig Collins or Simon Mules on LinkedIn, and follow our LinkedIn and Twitter pages.