As a master broker, one of our core product offerings is the second charge mortgage. Despite its growth in the specialist mortgage market, many brokers often confess to us that these particular mortgages can leave them scratching their heads.
Sound familiar? Don’t worry. Here we shed some light on the mystery by answering six questions brokers often ask us about these loans:
1. “What are the basic facts about second charge mortgages?”
If you’re not 100% clear on the facts around second charge mortgages, you’re not alone. We often hear from brokers who don’t fully understand the details or where to start. And if you’re brand new to the brokerage world, you may still be getting to grips with first charge mortgages.
Previously referred to as ‘secured loans’, second charge mortgages used to be perceived in a negative light. But they’ve since changed so they’re no longer viewed as a high-rate, heavily subprime option associated with PPI mis-selling.
Instead, second charges actually offer competitive rates at a small premium to first charges. Lending is prudent, based on full affordability and income checks, with an average LTV of 59%. And as these loans are MCOB-regulated, you can be confident your customer will have the protection of FCA regulations and be treated fairly at all stages of the process.
Second charges are taken out by mainstream borrowers for a whole host of reasons. For example, they’re often used for home improvements, second property deposits, tax debt repayment, business finance or school fees. As well as those in prime credit, borrowers often include people who are credit-impaired, self-employed or “stuck” in their first charge.
2. “When should I recommend a Second Charge?”
Some brokers tell us they aren’t sure when a second charge could be an appropriate capital-raising alternative to a first charge. This means they might be missing opportunities and not recommending the best solution to their clients.
It’s also a problem in the context of the Mortgage Credit Directive (MCD), implemented in 2016. This requires mortgage advisors to consider second charges if they’re the best solution for their clients. But if you’re unclear how they work and what they can be used for, this can make things tricky.
So when might you look at a second charge over a first charge?
The most obvious scenario is when a first charge just isn’t an option. Maybe the borrower is self-employed and lending criteria have tightened since they took out their first mortgage. Or perhaps they’re credit-impaired, at the salary multiple limit, or need the funds within four to six weeks.
There are other cases where a second charge might also be appropriate. For example, they can sometimes simply prove cheaper than remortgaging – particularly if your client faces heavy early repayment charges.
3. “How do I place a second charge?”
Placing a second charge mortgage can seem daunting if you’ve never done so before. Knowing the key steps will make your life much easier. Here are the six stages of placing a second charge by working in partnership with a master broker like Vantage Finance:
Stage 1: Client enquiry
The first step is to listen to your client’s needs for raising capital and review the first and second charge options. If you feel a second charge would be most suitable, it may be worth referring the client to Vantage. Let them know you’re passing their case to a master broker but you’ll still be in touch throughout the process.
Stage 2: Advice – initial contact with Vantage
At this point, Vantage will usually contact your client to take them through the process. Our first tasks are to identify the best second charge product on the market, carry out initial suitability assessments and explain the terms to the client. But don’t worry, we’ll keep you updated as much as you want. Even before the fact-find and receiving the paperwork, we’ll instruct a valuation and request consent from the first charge lender. This will help make the process as quick and efficient as possible.
Stage 3: Advice – fact-finding and sourcing
The next step in the advice process is to conduct a fact-find with the client. We’ll ask them to supply the specific information required for a second charge mortgage, and reassess their case based on this. Then we’ll source and recommend the product that’s the best fit for them, before talking them through the terms.
Stage 4: Packaging – processing
We then start the packaging process. We’ll send the paperwork to the client, including the ESIS and checklist of supporting documents.
Stage 5: Packaging – submission
Now we’re ready to package the case and submit it to the lender. They’ll review and underwrite it, requesting any additional information or actions as required. They’ll also conduct a security call with the client and confirm their details.
Stage 6: Completion
Finally it’s time for completion. We’ll prepare the binding offer and get this signed by the client before sending it to the lender. After we’ve received confirmation of completion, the client will get the funds. We’ll then pay you – and your network, if appropriate – an introducer fee within three days of us receiving our broker fee and commission from the lender.
So, as you can see, when you work with a master broker they’ll do a lot of the heavy lifting for you. All you really have to do is give the initial advice and make the referral.
4. “How can I help the process go smoothly?”
The answer is by being as clear and transparent with your client as possible. In plain English, explain why a second charge can best solve their needs and exactly what they can expect from the process. This will alleviate any concerns they have and give a better chance everything going without a hitch. Don’t forget to:
– Set your client’s expectations in terms of costs, fees and charges
– Be clear on what documentation is required
– Explain the importance of them being transparent and providing complete information
– Get consent for credit checks upfront and share the client’s personal data with Vantage (we’ll do a soft credit check at initial stage, with the hard search completed at full application stage by the lender)
– Share the results of your fact-finding with us to avoid the client being asked the same question twice
5. “Aren’t second charge fees expensive?”
It’s a common misconception that second charges are costly. Though this was the case in the past, both fees and interest rates have fallen dramatically, especially since the MCD.
But it’s important to make clear to your clients that, because these loans are secured and have lower legal priority than a conventional first charge, they do carry higher interest rates in line with the bigger risk taken by lenders.
On the other hand, unlike with first charges, clients often have the option of not paying upfront for valuation fees and other costs.
6. “What’s the paperwork like?”
Because second charges are regulated under the same regime as first charge mortgages, the paperwork requirements are fairly similar. There shouldn’t be much new or different you need to learn, though there will be an application form and declaration form to complete (which not all first charge lenders will have). But when Vantage is providing the advice to your client, we’ll take responsibility for getting the compliance right. So that’s a weight off your shoulders..
For more information on Second Charge mortgages, give us a call on 01753 883 195 or send us an email
We’re delighted to announce that we have partnered with the mortgage network Mortgage Intelligence and their Club, Next Intelligence.
This partnership means that intermediaries – from both the network and club – will have access to all our services and expertise in the specialist lending market. We’ll support them and their clients with:
- Commercial mortgages
- Bridging loans
- Development finance
- Complex Buy-to-Let mortgages
- Residential First and Second Charge mortgages
Mortgage Intelligence are a mortgage and insurance network and club that has supported brokers for over 20 years. They are committed to providing an award-winning service and support to all their members. They’ve built their service model on the insight that brokers want more than a ‘one size fits all’ approach, meaning members receive a more personalised service.
It’s for this reason we believe we’ll be the perfect fit for their intermediaries. Our whole ethos at Vantage Finance is built on focussing on our core values of efficiency, communication, expertise and determination.
Mortgage Intelligence have an outstanding reputation within the financial advice sector. We’ve all seen that specialist lending has gone from strength to strength over the last few years, and we’re excited to help continue this growth.
We’re looking forward to working with Mortgage Intelligence to help their team navigate the variety of commercial finance solutions.
By Lucy Barrett, Managing Director, Vantage Finance
Property developers of all shapes and sizes can suddenly find themselves in need of a rapid cash injection for a number of reasons. But the fact that more than half of SME house builders cite ‘lack of finance’ as one of their biggest obstacles suggests that traditional lenders are falling short in meeting their needs. For brokers, this opens up a valuable opportunity: to educate your clients about alternative means of short-term funding — and to help them identify the best ways to keep their projects on track.
Here, we’ll take a look at how and when to introduce short term finance as a possible funding option to brokers.
Anticipating need: what are your clients looking for?
When it comes to finance, levels of market knowledge can vary widely between property professionals. A novice buy-to-let landlord, for example, might be approaching this area for the very first time, and so they may not know their second charges from their bridging loans. For this group, extra care would be needed in explaining the more basic concepts. And even with more seasoned developers and investors, it’s safer not to assume that they are fully up to speed on all the options available to them.
Here are some considerations worth bearing in mind as you approach this subject.
Their projects may have already been adversely affected by finance issues
Last autumn, the FMB reported that 45% of its survey respondents had been involved in projects that had stalled due to financial problems — up from 35% a year earlier. Property professionals are increasingly seeing the effects of funding shortfalls, first hand. It’s reasonable to assume that they will be keener than ever to ensure that they can access the right solutions if and when they need them.
They are looking at alternative finance in ever greater numbers
Recent data from the Association of Short Term Lenders shows that £386.1m of development finance was arranged in the first quarter of 2018. Of this, approximately two-thirds consisted of development finance — up 22% on the previous quarter.
Locked out of mainstream channels, it seems that property professionals are amenable to the alternatives, and especially bridging loans. Alternative finance offers a smart way to solve practical problems, and as such, this is where brokers can really add value: by flagging up the specific funding solutions to meet the individual circumstances of clients.
Spotting the needs of property professionals
When trying to match short term finance options to the needs of property professionals, the starting point involves finding out more about the development project. This is a valuable opportunity to demonstrate your sector-specific knowledge, to set out your stall as a safe pair of hands in this area, and to flag up the type of solutions your client may require as the project progresses. Here are some project examples you might encounter, and what short term option is best for them.
Cosmetic, ‘light’ works
Buy-to-let landlords are frequently involved in this type of project. For instance, a client may need funding for essential works to make a property suitable for the rental market. However, because they are already heavily-leveraged, extending the mortgage loan with their current, traditional lender isn’t a practical option. The goal is to get the work completed as swiftly as possible (e.g. within 1-3 months).
A bridging loan can be an ideal arrangement here. Quick to arrange and flexible, it can supply your client with the funds they need to get their property on the rental market — with a view to repayment once the property starts generating rental income.
Suppose you learn that your client’s investment is focused on a dilapidated property. The exit plan involves total refurbishment for mixed commercial use, followed by resale. But your client is faced with a problem: no mortgage lender will issue a loan on it unless the property meets institutionally-determined minimum spec levels.
In this situation, bridging finance can work especially well: it is designed to fund the initial purchase and to put your client in sufficient funds to make fundamental improvements. Once this work is done, your client can then switch to a commercial mortgage.
In other situations involving significant refurbishment, remember that many smaller-scale investors may not have considered the possibility of dedicated development finance. For instance, are they aware that this can be put to work not just in ground-up developments, but in conversions and refurbishments, too? Do they know that ‘part-time’ developers can also qualify? It is useful to explore these possibilities right from the outset of your client relationship, and to review the options available regularly.
When planning to start work on a multi-unit, ground-up development site, your client’s primary concern may be to secure development finance. But don’t overlook the additional funding based concerns they may have. Typically, these can include the following:
- If there are complications or delays around planning, how will this affect the provisional offer of funding?
- Can interest be rolled up and deferred to avoid strains on cash flow?
- Contingency planning: in the event of the unexpected (e.g. Brexit-linked labour shortfalls), is there a possibility of accessing additional short-term injections of cash to fix the problem?
In each of these situations, an element of bridging finance may be needed to get your client back on track.
An early conversation is always essential
As a broker, if your service offering comprises a combination of specialist mortgages, development funding, and short term finance, you are in a strong position to set clients’ minds at ease — right from the outset of the relationship.
From enabling your client to enter a mortgage bid through to essential refurbishment and executing the exit plan, it enables you to frame your service offering as a ‘one stop shop’; whereby even if snags and other issues hit the project, there’s a very strong likelihood that you will be able to equip them to get through it.
If you’re interested in learning more about how to make the most out of your property professional opportunities…
speak to Vantage today
With a recent RICS survey reporting it’s more difficult to sell a property now than a year ago – it certainly feels like it should be a buyers’ market.
But despite the market needing stimulation, many potential buyers are being turned away by High Street lenders for residential mortgages because they don’t fit their criteria.
Here’s where you can help…
Turn to us. As a leading master broker working day in, day out, with a wide panel of lenders for over 14 years – we can access and negotiate the best deals for your client.
Through our strong relationships, you currently have access to a limited, 2-year 3.59% fixed rate residential mortgage designed to work around your clients, not the other way around.
Designed around your clients:
– Most security types accepted
– CCJs and defaults accepted
– Limited adverse credit in the last 2-3 years:
– Max secured arrears: 0 in 12 months (1 in 36 months)
– Max CCJ default: 0 in 24 months
– Max unsecured arrears: 0 in 6 months (2 in 24 months)
For more information, give us a call on 01753 883 195 or send us an email
Recent times have proved difficult for property investors. Changes from lenders and regulators have made refinancing and raising further capital that little bit more challenging – and an unstable property market hasn’t helped.
But as you will know, this hasn’t deterred all. Savvy property investors are still spotting and seizing opportunities in the market – many turning to less traditional property types, and regional locations.
So, how can you help your property investor clients in these scenarios?
We’re delighted to extend to you a completely new, strategic partner exclusive product – enabling your clients to borrow specifically for light refurbishment projects.
This product may be the perfect solution for clients who are:
– Purchasing or refinancing residential or commercial properties at speed
– Refurbishing a property to then let or sell
– Converting single dwellings to small, straight-forward HMOs
– Buying a property with a known issue, to repair and then rent/sell the property
– All funds advanced on day one
– 75% LTV against the lower of day one purchase price or value
– Up to 100% LTV of the refurbishment costs on a single larger facility*
– £50k to £15m loan sizes
– Single lets / Multi-units / HMOs: 0.80% pm
– Semi-commercial: 0.91% pm
– No QS required, just an interim inspection at the end of month three
– Available to individuals, LLPs, UK limited companies and mainstream offshore limited companies
* Up to 100% of the refurbishment costs can be funded but the total loan cannot exceed 85% of the day one purchase price/value or 70% of the post works value (whichever is lower)
For more information, give us a call on 01753 883 195 or send us an email
As a result of Data Protection legislation and associated regulation, you are entitled to be assured that your personal data is collected, processed and stored for specific purposes and that this is done so securely and confidentially. We, as Data Controllers, have responsibilities under Data Protection laws to inform you of the data we collect, why we collect it, how we process it and with whom it will be shared. This is set out in our Privacy Notice, a copy of which you may already have been given.
Should you require any further details or wish to enquire on the details we hold on you please contact the firm’s Data Protection Representative via the following:
Post: Data Protection Representative, Vantage Finance, Second floor, Building 1, Chalfont Park, Gerrards Cross, Bucks, SL9 0BG
Tel: 0175 3 880 447
Who we are
Vantage Finance Ltd (VFL) is a mortgage adviser and packager of mortgage loans. We act with your financial adviser or broker, who provides us with your personal data to effect an application for a first, second or subsequent charge mortgage. Depending on the circumstances, VFL may provide you with advice on the most suitable loan available based on your financial circumstances or, where your adviser provides this recommendation, will package your application for submission to the chosen lender.
Where we provide advice to you, we will need to collect details on your income and expenditure, details of any loans you have outstanding (both mortgage and personal lending), and your credit history and repayment profiles. This data will be passed to the chosen mortgage lender.
In any instance where VFL acts as packager of your application, VFL will source a number of loan options for you, based on the information provided by your adviser and once they recommend a specific product we will collect all information that is required by the lender to complete drawdown of the required funds.
VFL is authorised and regulated by the Financial Conduct Authority (FCA). Our Firm Reference Number is 446234. You can obtain further details on the company from the FCA’s website at: https://register.fca.org.uk/
The company is also registered with the Information Commissioners Office (ICO) as a Data Controller. The firm’s registration number with the ICO is: Z8792297 and further details can be obtained from the ICO’s registers at: https://ico.org.uk/esdwebpages/search
What data we collect
We will only collect such data that is needed to underwrite your loan application. This includes:
- Your name
- Your current and previous address(es)
- Your date of birth
- Details on your financial profile including your income and expenditure
- Your identification documents (e.g. copies of passport or drivers licence)
- Other relevant details required to establish your identity
- Other relevant information pertinent to the application for a loan as may be required by the lender
Details that we will never require from you include:
- Your religious views
- Your political views
- Your sexual orientation
- Your medical history
- Your trade union memberships
Why we collect your data
Under Data Protection laws we must have a legal basis for the collection of your data. This means that there must be a specific reason for us to request your data. Vantage Finance collects data for the maintenance of a contract for a loan application and for the preparation of entry into this contract. The information is used and processed in order for us to provide you with advice and to submit to lenders for their underwriting of your application.
Sources of information
All initial data that we gather about you will be provided by your financial adviser or broker acting under your instruction.
Using that data, we will obtain further data from those external companies who maintain data on your credit history (i.e. CRAs) and Fraud Prevention Agencies as well as the Land Registry.
With whom do we share your data
Your data will be shared with other, external data processors to assist us in providing you with finance. These include:
- Mortgage Lenders
- Credit Reference Agencies (CRAs)
- Fraud Prevention Agencies
- Our parent company, Enra Group Ltd
- Our regulator, the FCA
- Statutory Bodies on their lawful request, e.g. NCA, police forces
In order to provide you with finance, VFL will pass your details to mortgage lenders in order that they can underwrite and assess your application to provide the loan funds. The chosen mortgage lender who commences the underwriting of your application will act as Data Controller and will provide you with a copy of their Privacy Notice detailing how they use your data. They may also require further information to process the application which they will ask us to gather and submit to them.
CRAs maintain credit profile data on consumers within the United Kingdom. As part of the application process, your details will be shared with the CRA in order that we can view your credit history and profile. This provides details on loans, credit accounts, personal finance and utilities that you maintain or have maintained displaying how you have managed their repayments. While this informs our decision on providing you with finance, this is not the sole criteria for our decision.
Vantage Finance Ltd is part of the Enra Group of companies. As a result, a number of the functions which are common to each firm in the Group is undertaken centrally by Enra. This will entail sharing your data with Enra for the purpose of maintaining and administering your loan contract as well as processing your data for internal statistical purposes only.
The FCA and other Statutory Bodies
Where the firm is regulated, we have an obligation to report certain personal data to the FCA, a statutory body set up under legislation. We have further requirements, where requested by other statutory bodies, such as the National Crime Agency, police forces, the Serious Fraud Office, etc. to provide specified personal data on their lawful request for information. This is done on a confidential basis and, through legislation, you will not be entitled to be informed of when this transfer of data has occurred. Details of what data we have submitted to these entities are also exempt from disclosure under a Subject Access Request.
Data Protection legislation provides you with express rights which include:
Your right to object or request erasure of the data we hold
You may object to Vantage Finance holding or processing your personal data and/or request that we remove this data from our storage. Please be advised, however, that should you request that this takes place before a loan completes then we will be unable to provide you with advice or complete the loan application. Please contact the firm’s Data Protection Representative for further details or to exercise your rights.
Your right to correct your data
Where you or we become aware of an error in the data that Vantage Finance controls, processes or holds, you have a right to have that data corrected. You can inform our Data Protection Representative of any errors that need to be corrected.
Your right to a copy of your data
You also have the right to request either the details of the data we hold on you or to request a copy of this. We are obliged to provide this to you within 30 days of receipt of your request. Please contact the firm’s Data Protection Representative to request this.
Your Right to Data Portability
You have the right to request that data which we hold is passed to another Data Controller for their use on your behalf via a “machine readable” format. This can be requested from the Data Protection Representative of Vantage Finance.
Your Right to Complain
You have a right to complain, via our Data Protection Representative, in regards to how and why we process, or any errors we have made in the processing of, your data. Your complaint can also be made to the Information Commissioners Office:
Post: ICO, Wycliffe House, Water Lane, Wilmslow, SK9 5AF
Telephone: 0303 123 1113
Vantage Finance will only retain your data for as long as is necessary. In all cases this will be for a period of 7 years from the drawdown of your loan facility and where your loan does not complete, from the time when the decision is made to refuse credit by the lender or where you decide not to proceed. We are obliged to retain your data for this period in order to meet our regulatory and legislative obligations.
All Data that Vantage Finance collects is controlled and stored within the UK. We do not transfer data to any entity outside of the UK or the EEA. Where this does occur, we will inform you of the situation and seek your consent prior to the initiation of the transfer.