Back to Listings
22 February 2017

Blog: Now is the time to give second charge mortgages a second look

Posted by

Everyone seems fascinated by Generation Z and millennials to the point of obsessing about how their lives differ from Generation X and baby boomers.

I can’t deny that I’m also intrigued by intergenerational differences. 

A thought-provoking report caught my eye this week. It was a vast survey of 20,000 young people in 20 countries, enquiring about their wellbeing, hopes and values. The respondents are all Generation Z – born between 1995 to 2001. 

The report's author said “Young people are passionate believers in the right to live the life that they choose. However, they are a generation that is deeply pessimistic about the future of the world.” I felt moved to learn more. 

As the report highlights, this generation will shape the next few decades. In the west, they may be the first to be worse off than their parents due to a squeeze on earnings, lower pensions and higher housing costs. Growing up in the shadow of the financial crisis, rapid change has been a constant for Generation Z.

The report got me thinking about how the mortgage industry is changing to meet Gen Z’s needs today and in the future. 

When I reflect on how the world has changed during their lifetime – economically, socially, technologically and politically – I’m not convinced our sector appreciates how much it has yet to adapt for them. Corporate evolution is inevitable when customers’ lives change and their needs shift. But are we adapting quick enough to keep pace with social change?

There is a whole new generation of young people around the corner who may be relying on the Bank of Mum and Dad to help them on to the property ladder  and second charge mortgages may be part of the solution that can help put both older and younger generations on a sustainable footing.

Concerns that second charge mortgages are considered second-class products are surfacing. Evidence of a lack of awareness of the product among consumers has arisen recently and some lenders have voiced misgivings that brokers aren’t giving second charge products due consideration in line with the Mortgage Credit Directive (MCD) obligations to consider the most suitable option for the customer.

A whole new generation of young people may have to rely on the bank of Mum and Dad.

This resonates with me, because I believe some professionals – introducers in particular – remain overly focused on first charge mortgages as a solution for clients. I don’t dispute that master brokers and packagers have been instrumental in driving the message about the benefits of second charge mortgages to their introducers for many years. Some of them really get it, and understand why they should talk to their clients about a second charge option.

But I still question whether the networks are doing enough to make members aware that brokers should be doing more. There is a great opportunity for networks to embrace the second charge market and work closely with master brokers and lenders to give their clients the option of a second charge, where it is the most suitable option. 

I also question whether enough is being done to promote second charges to first charge brokers. I believe that first charge brokers who consider themselves ‘whole-of-market’ should look to offer their client a second charge if that is the right product for their situation. 

Second charge lending is seen as specialist lending and there are various solutions for customers whose circumstances don’t always fit a ‘mainstream’ underwriting criteria. So what needs to happen to enlighten the first charge mortgage broker that second charge mortgages are a viable proposition for their clients? 
 
Direct access may be part of the process. Some lenders are considering offering this to mortgage brokers, and I think this is definitely a development opportunity for some lenders; indeed some are already active in this space and I’m sure many more will sign up for this. However, this solution doesn’t automatically mean that brokers will use them.

Master brokers are an integral part of the second charge mortgage market – their knowledge and expertise in this sector gives brokers the opportunity to place deals which previously they couldn’t have arranged for their clients.

I believe it’s time for brokers and introducers to think differently about second charge lending – take a moment to see how it’s moved into the world of first charge since the MCD. The speed of delivery is vastly improved and the customer experience is greatly enhanced, so there is no excuse for them not to understand the market; and anyone who considers themselves whole of market – but don’t see second charge mortgages as an option for clients – must be ready for the question: why not?

Visit our Mortgages page for more information.