2008 was always going to be an interesting year for advisers and brokers.
The credit crunch has continued to affect us all, the Northern Rock debacle rumbles on, and the mainstream mortgage lenders have followed their non-conforming cousins and tightened criteria considerably.
To survive in the current climate, introducers and brokers have had to look at a variety of new products to meet their customer’s requirements – secured and unsecured loans have been two of the most popular routes to help clients for whom a remortgage may no longer be the best option, or even an option at all.
Regulatory change
Looking forward to the beginning of April, there are some significant regulatory changes that will affect all firms involved in advising clients and arranging financial products on their behalf.
These are the result of revisions to the Consumer Credit Act (CCA) which governs the way all non-corporate and non-first charge credit is offered and operated in the UK. They fall into two main areas.
Firstly, licensing. To offer financial advice an individual or company has to be licensed by the Office of Fair Trading. Historically licences were granted to applicants who could prove they were fit to hold them and for a period of five years.
Going forward, applicants and those looking to renew will not only have to prove they are fit to hold a licence but will also have to prove that they are competent to do so, and evidence their experience and show compliance with a variety of legislation, not just the CCA.
In addition, there will be a far greater degree of policing after a licence has been granted. Further details can be found on www.oft.gov.uk.
Secondly, the financial limit. Previously loans under an arbitrary £25,000 figure were ‘regulated’, and loans over this figure were ‘non-regulated’ – meaning that they were outside of many of the requirements of the CCA. From 6 April this figure will be abolished, meaning that almost 100 per cent of loans will be ‘regulated’ by the CCA.
Raising the barriers
These changes are very important for intermediaries and personal loan specialists alike. The new licensing requirements will raise the barriers to entry to the loans market and ensure that standards are lifted.
The removal of the financial limit is also likely to provide the industry with a much needed fillip in these difficult times.
This follows from the way personal loans – secured and unsecured – are offered by introducers, particularly mortgage brokers and advisers.
Typically, they are offered to clients looking to raise finance, where a remortgage would not be ‘best advice’. Typical circumstances would be where:
- The client has a fixed or discounted rate and is tied in by a hefty redemption penalty.
- The client’s circumstances have changed since the granting of their first mortgage, and to remortgage would mean that they were paying a higher rate.
- The clients wanted to avoid hefty up-front fees such as valuation or solicitor charges.
Currently for loans in excess of the financial limit a borrower is likely to pay a significant settlement penalty if they look to settle early – a fact that has put many introducers off referring cases for loans, and in particular secured loans.
However, now that all loans are going to be regulated this penalty is significantly reduced – the maximum a borrower can be asked to pay upon early settlement is one month’s interest, once they have given 30 days notice, and some lenders are even asking for less than this.
Making great strides
This change makes secured loans far more attractive. Combined with the fact that the industry has made great strides in improving its image through its trade bodies – the Finance Industry Standards Association and the Association of Finance Brokers – there are few reasons left for an introducer not to consider the secured loan option when assessing the best product for their client’s circumstances and giving them advice.
