As many lenders have entered the sub-prime sector to supplement their core business, there is a sentiment that the MCD could also tempt mainstream lenders to dip a toe into a burgeoning market and take market share away from existing lenders.
Harry Landy, sales director of master broker Enterprise Finance, said: “I can’t see this happening in the short term. The second charge market is simply not big enough for the mainstream lenders to occupy. The size of the second charge market is £1bn, whereas the size of the mainstream market is around £242bn.”
Mr Moore said: “Mainstream lenders are lending in the seconds market right now, either directly or via warehouse lines to second charge lenders. I think it’s unlikely that many more will join the sector while its numbers remain as they are.”
Master brokers have traditionally held all the aces when it comes to accessing second charge lenders, but changes under the MCD has meant the emergence of new challenges.
The “significant transition” the second charge market has undergone post-MCD is the reason cited by market-leading master broker V Loans for its decision to pull out of the sector.
The advent of second charge lending panels among distributors also threatens to erode the earning potential of master brokers. Adviser network TenetLime and Legal and General Mortgage Club are two large distributors that have launched such a proposition for their brokers.
Mr Landy questions whether network and mortgage club panels are too restrictive. He said: “Competition is good for consumers, but clients of brokers who use a panel of second charge lenders are restricted in their choice and only see a snapshot of the marketplace, whereas we offer the full picture.”
Many lenders do not offer their products directly so brokers who opt to go direct cannot be sure that they can source the best deal for clients, according to Mr Landy. He added master brokers have access to sophisticated sourcing systems that trump those used by most intermediaries.
He said: “The second charge application process is not as straightforward as that adopted in the first charge space. Brokers come to us because they appreciate that they do not have adequate knowledge on the criteria of the different second charge lenders in the market.”
Most brokers have elected to stay and work with their chosen master broker since the MCD, according to Mr Moore.
He added: “Feedback that we have had from intermediaries is that the ‘direct to lender’ channel in seconds remains incomplete in product and lender choice, which naturally creates a challenge in terms of suitability of advice.”
Master brokers have often come unstuck by the amount they levy for their services.
