When the Mortgage Credit Directive (MCD) framework was rolled out in 2016, it came with a clear message: second charge mortgages should be treated in the same way as first charge mortgages. When finding the right solution for a client’s needs, seconds should be given the same amount of consideration as firsts.
Yet, a recent survey by Brightstar Financial stated that 74% of brokers don’t talk to their clients about second charges at any stage during their mortgage product lifecycle.
If the second charge market is going to reach its potential, that statistic needs to change. As an industry leader, we see it as our job to do that.
Raising awareness of second charge mortgages
For more brokers to embrace second charge mortgages, we need to increase awareness and highlight the fact that they’re a mainstream financial product that should be considered when capital raising in any capacity.
Second charges may, for example, be a cheaper, more flexible alternative to a remortgage or offer a longer-term to repay than an unsecured loan. These are huge benefits to customers.
To communicate these benefits, we intend to increase our social media engagement over the next 12-18 months. This is a change in direction as Pepper Money has traditionally been more inward-facing. If you don’t already you can follow us on LinkedIn & Twitter.
Embracing technology to benefit brokers
For the market to benefit from increased awareness, it’s important that we back up education with great customer experiences.
As an industry, we need to invest in technology and work together where possible to standardise the customer journey. Given the niche nature of the product, this shouldn’t be beyond the industry’s capabilities.
One of the greatest challenges we have is the cycle time from application to pay-out. A significant proportion of applicants are generated through online activity and we, as lenders, have a pretty offline journey.
Whilst brokers bridge some of this gap it’s my view that we need to embrace existing and emerging technologies to streamline the process and move a greater proportion of the journey back to online.
Unsecured and P2P lenders have shown how technology can enhance customer experience and arguably — in the case of P2P — grow a market. It would be advantageous if this was to also be the case in the second charge space.
If we’re going to get more brokers talking about and recommending second charge mortgages to clients, we should not let perfection be the enemy of progress. We need to improve the aspects we can whilst accepting there will be limitations with things such as the advice-giving process.
The economic impact of Covid-19
Of course, for second charges to thrive in the future, we need to address the present. There remains a fair amount of uncertainty around the longer-term economic effects of the virus and the impact that will have on people’s employment status.
This is where underwriting scrutiny and understanding is paramount.
I am pleased to say that we have a huge depth of experience in our underwriting team and have always blended technology-led decision making with objective manual review. This approach will be key to navigating through the recovery.
Working from home also presents some challenges which are not exclusive to second charge mortgages and the specialist lending sector. However, at Pepper Money, during the more challenging periods of this year, we had taken quick measures to help each of our team members adjust and transition smoothly to enable business to continue as best as we could, given the circumstances.
It’s great news to see our service levels have remained at a high standard throughout the pandemic. We have a huge amount of confidence in the market bouncing back and have not made any redundancies.
We’ve also been working hard, whilst lending volumes have been subdued, on our systems and the benefits of that in terms of both broker and internal efficiencies should become visible in the coming months.
Exciting plans are in place for products which we hope will drive further demand and add to the number of lending applications later in 2020 and certainly in 2021.
A positive future
For Pepper Money as a company, our recent securitisation makes us well-positioned to help grow the market.
That trades were completed against an exceptionally challenging economic backdrop and our continued ability to access capital market funding is testament to the confidence that investors have in the quality of our loan book, our management team and our business.
The funds raised through the securitisation will underpin our new origination throughout 2021. Our diverse funding model as a non-bank specialist lender will continue to help us to drive product innovation, technical advancement and competitive pricing in the second charge mortgage market to the benefit of both brokers and customers.
As previously touched on there is a great opportunity for seconds if they are incorporated into the brokers’ toolkit and considered alongside remortgages in all instances.
The second charge mortgage market has always shown itself to be adaptable and resilient which is reflective of the brokers and lenders that operate within it. The year-on-year growth prior to Covid-19 was encouraging and I expect that upward trajectory to continue once the impact of coronavirus subsides.
If you’d like to chat more about second charge mortgages and what Pepper Money is doing to help brokers, contact Craig Collins on LinkedIn.