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More brokers are waking up to the potential of second charge mortgages to provide fast and flexible solutions for the capital raising requirements of their customers. It’s easy to understand why.
Where it may take eight to 12 weeks to secure a first charge mortgage, it’s not uncommon for a second charge mortgage to be offered within 24 hours of the initial fact-find. The speed at which customers can access capital aligns much more closely with the fast-paced world we live in today. Customers demand an experience that is as slick and easy as possible, and a second charge mortgage can deliver this.
There are a number of reasons why second charge mortgage lending can proceed so quickly. For example, three quarters of our cases don’t require a physical valuation, and nowadays permission from the first charge lender is only required around a third of the time.
Lenders are also proactive at providing submission checklists that detail any supporting documents that are needed, and these don’t differ too much from the standard documents requested by first charge lenders.
Income and expenditure
In most cases, it is the income and expenditure of the customer that holds the key as to whether the case is likely to be accepted. It’s this stage of the process that perhaps makes the biggest impact on the pace of a second charge mortgage, but also represents the biggest cultural difference for brokers who are more used to working in the first charge market.
This is because, unlike the first charge market, in seconds the broker carries out most of the underwriting and suitability checks themselves before packaging up the case and sending it for a final decision by the lender. This approach enables lenders to process cases extremely quickly, but it does put a greater onus on brokers to have a more in-depth knowledge of lender criteria.
However, a benefit of this approach is that it puts brokers in much greater control over the experience they can deliver to their customers. Often, it’s the broker who has the greatest influence over how quickly the case can proceed and this can be very empowering. Similarly, given that brokers are taking on more work by assessing and packaging cases in this way, the fees they receive from lenders are commensurate with this increased involvement.
Partner with a master broker
As a broker, staying on top of all the criteria and pricing changes in the first charge market is a full-time job in itself, so it might be fair to ask how they could be expected to also get to grips with the criteria of the second charge lenders to such an extent that they are effectively able to underwrite a case. The truth is that brokers are not expected to be able to juggle all this information – it would be impossible.
Instead, it is common in the second charge mortgage market for brokers to work in partnership with a master broker or specialist distributor that places high volumes of second charge mortgage business on a regular basis and so has an in-depth daily working knowledge of lender criteria and requirements. This is why this model of distribution is so popular in the second charge market – it opens this fast and flexible capital raising solution to brokers who may not engage with the sector on a daily basis.
Second charge mortgage lending can prove one of the fastest ways for homeowners to access the capital in their property because of the role that brokers play in assessing and packaging cases at the start of the process. But this shouldn’t prevent a wider group of brokers from engaging with the sector and denying their customers access to this solution – simply partner with a master broker or specialist distributor with whom you trust and can build a strong ongoing relationship.
Caroline Mirakian, sales director of second charge mortgages at Pepper Money
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