your guide to second charge mortgages - mortgage … · •lenders being fully responsible for...
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YOUR GUIDE TO SECOND CHARGE MORTGAGES
CLAIRE RANKIN - HEAD OF NETWORK DISTRIBUTION, SHAWBROOK BANK
THIS PRESENTATION IS FOR INTERMEDIARIES ONLY AND SHOULD NOT BE SHOWN TO POTENTIAL CLIENTS
THE HISTORY, THE JOURNEY,
AND THE HIGH LEVEL CHANGES
The Mortgage Credit Directive (MCD) is an EU-wide framework of conduct rules for mortgage firms. It is
closely aligned with the UKs existing mortgage regulation and follows the FCA’s comprehensive review
of the Mortgage Market (“MMR”)
WHAT DID MMR INTRODUCE FOR FIRMS?
The majority of MMR changes came into effect on 26 April 2014 and included:
•Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s income
•Required firms to provide advice in interactive sales (e.g. face-to-face or telephone) with very limited exceptions
•Enhanced professional standards with all sales staff having to hold a relevant level 3 mortgage qualification
•Vulnerable customers (equity release, sale and rent back, right-to-buy products, or where the main purpose of raising funds is to consolidate debt) must always be given advice
•Must have systems and controls in place to monitor advised sales process
•Introduced a new overarching requirement for firms to act honestly, fairly and professionally in the best interests of their customers
H ISTO RY 2 0 1 4 - 2 0 1 5
THE JOURNEY TO MORTGAGE CREDIT DIRECTIVE –
KEY AREAS OF FOCUS
• Second charge loans are moved under the same
regulatory regime as 1st charge mortgages
• Introduces MCOB rules surrounding Income,
Expenditure, Stress Testing
• Introduces new mandatory disclosure documents,
Mortgage Illustration (ESIS) and Binding Offer
• CCA consideration period is replaced with a 7 day
Reflection Period
• Reflection period can be waived
THE MORTGAGE CREDIT DIRECTIVE
• Fully advised sales call from a qualified adviser who has
to meet formal knowledge and competency requirements,
should improve information and advice to customers
• Disclosure of information via the ESIS should improve the
provision of information to consumers and enable
comparison of products
• Know your customer requirements, full fact find assessing
suitability and risk appetite
• Full affordability assessments including on remortgages
from other lenders and further advances
WHAT’S CHANGING FOR THE CUSTOMER?
THE MORTGAGE CREDIT DIRECTIVE
• Greater transparency on fees and charges, including
prohibition on fees being rolled-up into the loan
• Improved customer journey - personal recommendation
required
• Customer remains in control of process e.g. ability to waive
the reflection period
• Arrears: greater forbearance measures to be taken and
potentially lowering of costs across industry for customer in
arrears
WHAT’S CHANGING
FOR THE CUSTOMER? (CONT.)
THE MORTGAGE CREDIT DIRECTIVE
WHAT’S CHANGING FOR THE BROKER?
• Initial disclosure
• Mortgage Illustration (ESIS)
• Advised sales, fact finding, eligibility
• Research and Recommendation
• Issuing of a binding offer with a reflection period
• Minimum competency standards
• Professional Indemnity insurance requirement
THE MORTGAGE CREDIT DIRECTIVE
• ESIS
• Second APRC must be
quoted based on 20 year high
• Binding offer, legally binding
• Reflection period
• Mortgage deed issued with
binding offer
• Income and
expenditure/Stress testing
WHAT’S CHANGING FOR THE LENDER?
THE MORTGAGE CREDIT DIRECTIVE
• Choice – advised and
packaged only processing
routes
• Consumer Buy-To-Let
• Pipeline and transition
• Reporting requirements
WHAT’S CHANGING FOR THE LENDER? (CONT.)
THE MORTGAGE CREDIT DIRECTIVE
• Unaltered customer appetite
• Greater awareness – capital raising disclosure
• Greater demand – bigger audience
• New entrants – Independent Mortgage Advisers
CHANGES FOR THE MARKET–
ALL POSITIVE
THE MORTGAGE CREDIT DIRECTIVE
RECOGNISE THE OPPORTUNITIES AND
BE A PART OF THIS GROWING MARKET
*Actual CML figures
published 21st Jan 2016
estimate £220.3bn
www.cml.org.uk
*
THE MORTGAGE CREDIT DIRECTIVE
£7,000,000,000
At it’s peak in 2007 the UK second
charge market reached £7bn.
UK SECOND CHARGE LOANS 2007
Source: FCA CP14/20
THE MORTGAGE CREDIT DIRECTIVE
£800,000,000
December 2014
£600,000,000
2015
£800m
2007
£7bn
1- www.loantalk.co.uk
2-www.fla.org.uk
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2
THE MORTGAGE CREDIT DIRECTIVE
UK SECOND CHARGE LOAN MARKET
December 2015
HISTORY OF THE SECOND CHARGE MARKET
THE MORTGAGE CREDIT DIRECTIVE
I DON’T HAVE ANY OF THOSE CUSTOMERS?
THE MORTGAGE CREDIT DIRECTIVE
“My customers have
never asked me for
one ”
AT LAST YEARS EXPO WE ASKED -
“WHAT STOPS YOU FROM WRITING MORE OR ANY
SECOND CHARGE LOANS”
“I don’t really do that
kind of business”“I don’t have any
subprime clients ”
“I only deal with high
net worth clients”
THE MORTGAGE CREDIT DIRECTIVE
WE ALSO ASKED…
THE MORTGAGE CREDIT DIRECTIVE
Mortgage solutions survey May 2015
THE MORTGAGE CREDIT DIRECTIVE
4%
I t became clear that the customers that
brokers f ind tr ickiest to place, are some of
the most common reasons we lend on a
second charge basis
THE MORTGAGE CREDIT DIRECTIVE
Max age 80
Flexible Terms
Based on a viable exit
Accountants Certificate
6 Months Self Employed
Projections
THE MORTGAGE CREDIT DIRECTIVE
Exit for an IVA
Debt management plan
Missed payments
CCJs
Defaults
THE MORTGAGE CREDIT DIRECTIVE
Lifetime trackers/fixed rates
High ERCs
“trapped”
Debt consolidation
Business Purposes
Tax Bill
THE MORTGAGE CREDIT DIRECTIVE
4%
- LTV up to 95%
- Loans from £3k - £1m (Refer for more)
- Max age
- Credit score exceptions
- Diverse Product Range
THE MORTGAGE CREDIT DIRECTIVE
• Greater awareness and demand
• Increased professionalism
• Better customer outcomes
• Increased consumer confidence
• More sustainable market
THE FUTURE – SHAWBROOK GO EARLY
THE MORTGAGE CREDIT DIRECTIVE
ANY QUESTIONS?THANK YOU
THE MORTGAGE CREDIT DIRECTIVE