Belmont Green, the lender-in-waiting, has confirmed plans to offer second charge mortgages directly to brokers as well as through master brokers which could force down fees in the sector.
It is believed that Belmont Green will be the first second charge lender to take its products directly to mortgage brokers, cutting master brokers out of some of deals.
Currently all second charges are referred by brokers to master brokers or distributors who charge fees to the borrower which can be up to 10% of the loan value.
This has been historically justified by the claim that around one in 10 second charges converts to completion and pre-Mortgage Credit Directive, master brokers were unable to charge applicants for valuation costs they incurred.
This meant that master brokers charged fees of up to 10% in order to cover the cost of abandoned applications’ valuation fees.
Since 21 March however the rules have changed meaning it is now possible for master brokers to pass on the valuation cost pre-completion to applicants.
Guy Batchelor, sales and marketing director at Belmont Green, said: “We are designing our technology, processes and products around the needs of master brokers and mortgage brokers.
“Although we are still very much in the research and development phase we can assure you that master brokers are central to our launch plans.”
Rob McCoy, senior product manager at Sesame Bankhall Group, said: “There are several lenders looking at launching second charge loans to brokers directly and we expect them to bring their products to market by the end of this year.
“This could drive a big structural change in the second charge market and would make second charges much more competitive with remortgages potentially.”
Earlier this month Simon Burnell was appointed as director of sales, second mortgages, at Belmont Green. He formerly headed up business development at Nemo.
Rob Jupp, chief executive of Brightstar Financial, said: “Simon is a great guy and with Guy and David Tweedy working behind him they will be a very exciting partner.
“It’s important that as many clients as possible are given the option of a second charge mortgage where it’s appropriate and frankly as an individual it doesn’t bother be how they get this product as long as all the many options are considered and the client gets the most appropriate solution for their individual needs.
“Fees have come down greatly but this process started well before MCD. Many responsible distributors have worked tirelessly hard to make the products cheaper for borrowers whilst retaining a fair profit margin.”
Danny Waters, chief executive of Enterprise Finance, questioned whether master brokers would be likely to support a lender they would “effectively be competing with”.
He said: “That will come down to a commercial decision for each firm. But I think with the market being around £1bn, any lender is likely to struggle to get traction direct to brokers.
“In the short-term I don’t think this will affect the distribution model in second charge, though I can see more structural changes coming over a three to five year period.”
Lucy Hodge, managing director at Vantage Finance, agreed with Waters that the second charge market does not have the scale to serve a direct to broker proposition.
She added: “Technology might help lenders deliver volume but it doesn’t solve the processing quirks that exist in the second charge market entirely.
“Heavy investment would be required and even still, it doesn’t make up for the involvement of the master broker role.”