Understanding second charge compliance

Secured lending is a compliant environment for the intermediary, explains Stephen Lawrence, group national sales manager at Norton Finance UK Ltd

Since 5 March 2009 the Bank of England Base Rate has remained at a record low level of 0.50% and as a consequence many borrowers still have a low cost Standard Variable Rate on their mortgage account. 

However because inflation has increased and salaries in many cases frozen, family budgets are now being squeezed and as a result many borrowers need to reduce their monthly outgoings by consolidating any debts.

With unsecured credit not being readily available from lenders in the High Street borrowers are approaching Intermediaries to provide a solution to their debt problems.

In the past a remortgage would be the obvious solution for debt consolidation, but as a result of the often low cost charge rate on the existing first mortgage, and reduced loan to value on the remortgage products available in the market, intermediaries (where suitable) are now recommending an alternative solution to their clients: a second charge secured loan. 

The main reasons why intermediaries select a second charge secured loan as a debt consolidation solution are:   

• Retains the low interest rate on the existing first mortgage account
• Consolidates any debts into a single monthly payment 
• Provides loans up to 85% Loan to Value at terms up to 25 years
• Does not normally involve solicitors and associated costs
• There are no upfront fees paid by the borrower
• Products available both for prime and adverse borrowers
• Early Repayment Charges only a maximum of two months’ Interest (zero with some lenders)  

However to many intermediaries second charge secured loan products are still mysterious, being regulated by the Office of Fair Trading (OFT) under the 1974 Consumer Credit Act, and therefore many feel more comfortable introducing borrowers to specialist finance brokers who have an extensive secured lender panel and expertise to process this type of loan from application to completion.

In the past how an Intermediary has selected a specialist finance broker from the marketplace has been influenced by some or all of the following items:

• The advertising material received on products and services
• The secured lender panel available
• The company reputation in the marketplace for speed and loan processing efficiency 
• The commission structure paid on completion
• Through recommendation from another intermediary
• The ease of submitting a loan application
• The facilities offered to case track loan applications
• Because of a reciprocal business arrangement

Some of these items are still important, but going forward Intermediaries should satisfy themselves that any specialist finance broker they use for loan applications comply with any compliance regulation or guidance notes that are issued by the OFT. Failure to complete this exercise could have a detrimental effect on their professional reputation with clients in the future.

The guidelines on irresponsible lending issued by the OFT in 2010 sets out the procedures required by specialist finance brokers who process and package second charge secured loans. In particular the specialist finance broker must verbally disclose the following information to each borrower:

• Explain about the consideration period to the borrower(s) 
• Inform the borrower(s) that if there is anything they are unsure about regarding their loan they should always obtain independent legal advice before signing the loan credit agreement.
 
• The packager must ensure that all borrowers are aware of any Broker Fees at the outset.

• It must be made clear to the borrower(s) about charge rates. If charge rates are variable it must make this clear to the borrower(s) that payments are not fixed throughout the term and therefore payments may change.

• Affordability is a key issue when assessing a loan and a packager must ensure that the borrower(s) can afford the repayments. The borrower(s) need to be made aware of the importance of keeping up to date with their repayments and the consequences of missing payments.

The new guidelines place a major responsibility on to the specialist finance broker to provide clear and transparent information to the borrower(s) so that they fully understand the loan process and the features and benefits of the loan product being offered. 

Failure to comply with these guidelines could result in: 

• The Consumer Credit Licence of the specialist finance broker being revoked 
• The intermediary who submitted the loan application receiving a serious complaint from their client

To prevent any complaints an intermediary should satisfy themselves that any second charge secured loan applications submitted to a third party are processed correctly and that the irresponsible lending guidelines are being followed. To provide this proof at Norton Finance, one of the largest finance brokers in the UK, we tape all customer telephone conversations and have a loan processing system that provides an audit trail on the secured loan product selected. This information is shared with our business partners and provides the necessary comfort to them in this very compliant marketplace.

Doors opening for Buy To Let Property investors

With recent reports showing the cost of renting a home has risen over the last 3 months, we see this as another sign for BTL investors to breathe a sigh of relief.
Over the last few years, any time any property in a BTL portfolio needed work doing, redecorating or general maintenance between tenants, the funding for this would have to come from the owners own pocket due to the lack of products available to fund such work, simply put lenders didn’t want to lend on non-residential properties.

Well this is starting to change…

We have seen a definite change in lenders attitudes towards clients with BLT portfolio’s and the latest lender to be added to our panel Portal Portfolio is leading the way lending up to 80% LTV on both residential and BTL properties, which is 15% above the previous market leaders and the rates are coming down too, now starting under 10% APP.

We are now three secured loan lenders available for BTL investors all looking to lend and with a wide range in each lenders product there are definitely some very attractive offers on the market.

Two out of the three lenders also offering CCA regulated loans, which means low redemptions costs, leaving the door open to remortgaging in the future when first charge products follow suit.

For more information www.loanswarehouse.co.uk/broker

Secured Loan Profitable Opportunities...

I am writing to update you on recent new product improvements on Secured Loans and to remind you that Loans Warehouse pay our introducers 50% of all commissions we receive on secured loan completions. In fact our average commission paid to introducers just like yourselves topped £1100 per deal last month, and with rates of just 7.9% APR variable for employed and self employed applicants from £20,000 to £100,000 on offer now is the time to consider the secured loan market again.

Amongst some of the product improvements you can now offer your clients secured loans of up to 85% LTV if they have a clean credit rating or up to 75% LTV for clients who have had 1 or 2 missed payments throughout the last year, there's even an unlimited adverse plan available up to 65% LTV that includes mortgage arrears and CCJ's. There are currently over 250 secured loan plans available, the highest number we've seen since 2008, which means more option's for your clients and greater benefits for you.

We have also simplified the entire secured loan process with easy online DIP's. Take advantage of all we can offer simply click on http://www.loanswarehouse.co.uk/broker 

For more information on these innovative products and how you can benefit call us now 01923 678 870 or visit our website www.loanswarehouse.co.uk/broker we look forward to hearing from you soon.

P.S. Don't forget we can now offer 7.9% APR variable for employed and self employed applicants, call us now on 01923 678 870.

Personal Loans

Personal Finance Guide

With so many different types of loans on the marketplace it can be quite confusing to decipher the difference between them and to work out the unique advantages and disadvantages of each. This article aims to explain what each of these loan agreements are for and how they can be used to your advantage, as by picking the wrong loan agreement for your needs could end up costing you a lot of money.

Secured Loan
A secured loan is a type of personal loan that is secured against your home or property. This means that if you fail to repay the loan then you could be in danger of loosing your house. Generally people tend to take a secured loan if they want to borrow a large amount of money, over many years (generally from 5 years up to 20 years). Secured loans tend to be unpopular as they are secured against your property, however for some people who have a less than rosy credit history, a secured loan may be the only option available to them. It is generally considered that a secured loan is a lot easier to obtain then other types of loan due to it being secured against a high value asset. If you are looking to borrow a large amount of money, for example over £25,000 then a secured loan again may be the only option open to you.

Unsecured Loan
If you are looking to borrow a large amount of money, up to £25,000 with a long term repayment plan from 5 to 10 years then you will most likely want to take out an unsecured loan agreement. The main advantage to taking out an unsecured loan is that you do not need to own a property to be able to get the loan. However this means that you will need a better credit rating to take out an unsecured loan as lenders tend to run more checks on applicants for these types of loans. You should remember that if you are a homeowner and you default on an unsecured loan agreement you could still jeopardise your home as lenders can still take you to court to reclaim outstanding money. Courts may well take your assets into consideration, including your home, which may be sold to pay off your debts.

Bridging Loan
A bridging loan is a short-term loan that is used to ‘bridge’ between selling one home and buying another. These loans are generally used because you have run into problems in selling your home and the property that you are looking to buy is in danger of falling through due to the delay. Generally these loans should be only considered as a last resort option as it means that you end up paying off two loans at the same time- the bridging loan and your existing mortgage.

Debt Consolidation Loan
A debt consolidation loan is a loan that combines multiple loans together to consolidate your multiple outgoings into one ‘easier to manage’ loan. When you have multiple debts, such as personal loans, overdrafts and outstanding credit-card bills then there is a temptation to take out a further loan for use as a debt consolidation loan. As it can be hard to manage multiple repayments which may need to be paid at different times of the month it certainly does seem easier to use a debt consolidation loan to simplify this process. However, when you take on extra debt you are likely to end up paying more money in the long run as debt consolidation loans generally run over a longer term and may have higher interest rates than your other loan agreements. Check interest rates carefully and research debt consolidation before you decide to go down this route.

Overdraft Loan
An overdraft is a loan agreement that provides you with a buffer of money you can use on your bank account. Some overdrafts are temporary, so you will have to make up the shortfall over the loan agreement, but more often than not overdrafts tend to have an unlimited run loan agreement meaning that the extra money is always available to you. Whilst it can feel good to have a safety buffer on your bank balance in case you go overdrawn, the temptation is that you constantly live in your overdraft month on month. This means you constantly pay interest on your overdraft. Although overdrafts are a fairly cheap way to borrow money (generally), individuals are better off only using an overdraft facility on your bank balance as a last resort. When considering a debt consolidation loan you should look at your overdraft interest rate carefully as most likely it will be much lower than any other loan you are likely to take out so consolidation this loan will mean you end up paying more money.

Credit Cards
A credit card is simply a loan on a piece of plastic, allowing you to buy things on ‘credit’ as and when you choose. You will need to make monthly payments against what you buy on the credit card, however you do not have to pay off the entire balance each month, so if you are looking to pay for something over a number of months, then a credit card allows you to do this. Managing your credit card spending is important because if you cannot afford to pay off your credit-card’s balance regularly then you will end up paying a lot of interest on the money you owe. Credit cards are one of the more expensive forms of loan agreement. Individuals should ideally try to save for things that they want to buy instead of putting things on credit. However having a credit-card can offer you a safety net in case things go wrong and you need to make an emergency purchase. Such as car repairs, etc.

Payday Loan
A payday loan is a type of loan that is a short term loan that gives the borrower a small cash loan until their payday cheque arrives. These loans are generally low in value and run over a very short term, therefore have a fairly high interest rate to compensate for this. These loans are useful in case of emergencies and you do not have access to funds, however they can leave you short of cash after your pay cheque as you normally have to pay the loan back in full from your next salary. This means you might run into problems after payday, which isn’t ideal.

Cash Advance
For those who run into financial difficulties and are looking for a short term loan which runs over a short period of time, but unlike a payday loan does not have to be paid back from your next salary then a cash advance loan may be the solution. Similar to a payday loan, a cash advance loan is generally low in value, under £1000 and have a fairly high interest rate to compensate for the normally short duration that the loan runs over. These loans can be helpful if you run into financial difficulties and you do not have access to other lending means, such as credit cards or overdrafts. However unlike a payday loan you will not have to pay this loan off completely from your next salary, this allows you to budget better and pay off the loan in smaller amounts over a longer period of time.