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It’s not long now until the Mortgage Credit Directive (MCD) comes in and we’ve heard a lot of conflicting messages regarding what to do about second charge mortgages (secured loans). Some of this conflicting information is from the second charge providers during BDM visits so we wanted to clarify what’s required.
As you know Second charge mortgages will fall under mortgage permission from the 21st March 2016. Not all mortgage brokers offer them and some are unsure if they need to. We have been told that some second charge BDM’s are telling mortgage brokers they either have to start offering them to comply with the MCD or ensure a comparable second charge quote is issued to the customer for any remortgage with further advance business – This is simply not true.
Under the MCD you are not required to increase the services you offer. Therefore if you are limited to just mortgages there is no requirement to explore the suitability of the different alternatives. So the choice is yours if you want to include them as a service you offer.
Only one situation applies which means second charge loans have to be offered and this is if you are styled as an “independent” broker, i.e. you offer unrestricted advice and provide a fee only option. In this instance in order to keep the “independent” status you also need to give advice on second charge mortgages from effectively whole of market. If you don’t want to do this then you should drop the “independent” tag.
The only requirement for a mortgage broker if they decide not to include second charge mortgages is to ensure they inform clients that “alternative forms of finance may be available and more appropriate, such as further advances, second charges and unsecured loans”. You do not have to do anything further and do not need to assess the suitability of these alternative options; you simply have to make the customer aware of them.