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Second charge "token" repayments

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 03. August 2022

Looking to speak to mortgage brokers about second charge mortgages. 

Last week the FCA called out parts of the second charge mortgage market over “token repayments”, where borrowers made payments that were less that the accruing interest, o customers not keeping track could lose their homes. 

https://www.mortgagesolutions.co.uk/news/2022/07/27/consumer-duty-fca-warns-over-second-charge-token-repayments/ 

It called on select lenders to do more to avoid foreseeable harm. 

  1. Have you had cases like this for second charge? How common is it? 
  2. How much impact will Consumer Duty have on second charge mortgages?
  3. What would your advice be to someone looking to take out a second charge mortgages? 

2 responses from the Newspage community

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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
I feel second charge lenders are somewhere between the devil and deep blue sea on this one; on the one side we have the Government, consumer groups and the FCA telling lenders to show forbearance where people are struggling with repayments to avoid mass repossessions, we especially heard this message a lot through the pandemic and those voices are getting louder again with the cost-of-living crisis. Now those lenders that have shown the forbearance requested of them are being hit over the head by the FCA for doing it, which on the face of it seems harsh. Reading between the lines I think the FCA's issue is not with the forbearance shown initially, but with the lack of rules and procedures in place to manage these borrowers off the lower payments agreed, any reduced payments that are arranged should be for a specific reason and a specific timeframe, to give the borrower breathing room to right their ship, not become the new normal for them.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
1. Have you had cases like this for second charge? How common is it? I personally haven’t had these but other brokers I know have, especially those brokers that work in the adverse credit sector and I know they have seen this a lot. 2. How much impact will Consumer Duty have on second charge mortgages? I should hope a lot, I think second charge mortgages currently fall into a grey area for regulation where a lot is allowed to slide which shouldn’t be the case as ultimately the loan is still secured on the clients most valuable asset, their home. 3. What would your advice be to someone looking to take out a second charge mortgages? I very rarely advise someone to take out a second charge, the rates are very high to the point where refinancing is usually cheaper even if you have early repayment charges and these are factored into the overall cost. If a second charge really is necessary, keep the term inline with your first charge mortgage so it's easy to keep on top of them both coming to their end and if you can avoid having this second charge on an interest only basis do so.