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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

YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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Page 1: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 2: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

THE HISTORY, THE JOURNEY,

AND THE HIGH LEVEL CHANGES

Page 3: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 4: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 5: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• 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

Page 6: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• 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

Page 7: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 8: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• 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

Page 9: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• 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

Page 10: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• 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

Page 11: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 12: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

£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

Page 13: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

£800,000,000

December 2014

£600,000,000

2015

£800m

2007

£7bn

1- www.loantalk.co.uk

2-www.fla.org.uk

1

2

THE MORTGAGE CREDIT DIRECTIVE

UK SECOND CHARGE LOAN MARKET

December 2015

Page 14: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

HISTORY OF THE SECOND CHARGE MARKET

THE MORTGAGE CREDIT DIRECTIVE

Page 15: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

I DON’T HAVE ANY OF THOSE CUSTOMERS?

THE MORTGAGE CREDIT DIRECTIVE

Page 16: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

“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

Page 17: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

WE ALSO ASKED…

THE MORTGAGE CREDIT DIRECTIVE

Page 18: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

Mortgage solutions survey May 2015

THE MORTGAGE CREDIT DIRECTIVE

4%

Page 19: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

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

Page 20: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

Max age 80

Flexible Terms

Based on a viable exit

Accountants Certificate

6 Months Self Employed

Projections

THE MORTGAGE CREDIT DIRECTIVE

Page 21: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

Exit for an IVA

Debt management plan

Missed payments

CCJs

Defaults

THE MORTGAGE CREDIT DIRECTIVE

Page 22: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

Lifetime trackers/fixed rates

High ERCs

“trapped”

Debt consolidation

Business Purposes

Tax Bill

THE MORTGAGE CREDIT DIRECTIVE

4%

Page 23: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

- LTV up to 95%

- Loans from £3k - £1m (Refer for more)

- Max age

- Credit score exceptions

- Diverse Product Range

THE MORTGAGE CREDIT DIRECTIVE

Page 24: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

• Greater awareness and demand

• Increased professionalism

• Better customer outcomes

• Increased consumer confidence

• More sustainable market

THE FUTURE – SHAWBROOK GO EARLY

THE MORTGAGE CREDIT DIRECTIVE

Page 25: YOUR GUIDE TO SECOND CHARGE MORTGAGES - Mortgage … · •Lenders being fully responsible for assessing whether the customer can afford the loan, and have to verify the customer’s

ANY QUESTIONS?THANK YOU

THE MORTGAGE CREDIT DIRECTIVE