2017 was a strong year for second charge loans and while we wait for the figures to the final quarter, the market has definitely made steady progress again.
However, I am surprised every time I hear people talking as though they expected volumes to be much greater. On the few occasions that monthly figures had stayed the same year on year or even showed a dip, it was noticeable how much attention was paid to those blips, rather than to the overall success of the year and the significant contribution that secured loans made in 2017.
It was never the case that volumes would rise exponentially just because the regulator asked brokers to inform clients about secured loans when advising on capital raising. Fortunately, brokers were far too savvy to fall for the ‘you must write secured loans’ strong arm approach which the more short sighted among us thought would lead to the Holy Grail of great volumes.
Fluent for Advisers, the intermediary facing division of Fluent Money, had a great year. We consolidated existing network partnerships and successfully secured panel membership on many others. Working with brokers has been particularly rewarding. Especially when they realised we were not there to simply ‘tell’ them that they should be using secured loans instead of remortgages.
We have been strong advocates of looking to educate brokers about the circumstances where secured loans could be a better choice for clients when capital raising. Our success in terms of new business has more than vindicated the approach we took and in 2018 our aim is to continue to take the positive message to the intermediary community that secured loans have a valid place in their advisory arsenal.
Let’s not forget that interest rates for mortgages are beginning to come off some historic lows, mortgage rates, will, on first glance be ‘cheaper’ than the average secured loan and I think this is one of the main reasons why brokers tend to reach for the remortgage option as a first port of call.
When you take into account the extra cash generated added to the existing mortgage, the argument that remortgages have got to be a better bet cost wise for clients looks very seductive. The problem lies in whether, when the factfind is complete, the client’s circumstances are such that the remortgage choice actually makes sense.
There are plenty of reasons why a remortgage might not be the best choice for a client starting with the fact that most lenders put clients seeking to raise capital onto a capital and interest repayment basis. This, in itself, can have a detrimental effect on cashflow if the client was on an interest only arrangement. How about the cases where the existing mortgage has ERCs and/or a great rate that cannot be matched or bettered because of a deteriorating credit position? Also, where do you go when the existing mortgage term is less than ten years? Still a remortgage? By this time most good advisers are rightly looking at alternatives which is why secured loans can be both cost effective and a better fit for the client.
So, let’s continue to use price as a principal guide to the best product choice for a client. But let’s not forget to look beyond the headline costs and ensure that we have made sure what the effect of the client’s circumstances can have on the final choice of product as a remortgage or a secured loan.
In 2018, I am anticipating a steady increase in new business at Fluent for Advisers as more brokers respond to the logic of our approach as to why and where secured loans can be used.
Jeff Davidson is head of intermediaries at Fluent for Advisers
