The Intermediary – October 2026 - Flipbook - Page 58
S E C O N D C H A RG E
Opinion
Why is the FCA
asking awkward
questions?
T
here’s an old
management saying
that what gets measured
gets managed. No one
seems entirely sure who
said it first, but there’s
something in it.
In second charge lending, we’ve
become very good at measuring
things. Leads, applications, conversion
rates, completions, lending volumes.
But how good are we at measuring
whether the customer was actually
beer off six months aer taking
out the loan? It’s worth considering
following the Financial Conduct
Authority’s (FCA) somewhat
uncomfortable review of the second
charge market in March. I should
point out that the regulator found
examples of good practice, but also
shortcomings in advice, affordability
assessments and fees which
should give all of us something to
think about.
Commercially, the market is
doing well, the Finance & Leasing
Association (FLA) found second
charge lending reached £2.384bn in
the 12 months to July 2026, up 25%
year-on-year. But are we growing in
the right way?
Expensive business
One of the FCA’s more eye-catching
findings concerned intermediary fees,
ranging from 2.5% to 15% of the loan
amount, with most around 10%.
Specialist advice has value. Good
brokers work hard, cases can be
complicated and not every enquiry
becomes a completion. But the FCA
highlighted something interesting
about the economics behind those
fees. Many intermediaries were
paying substantial sums to acquire
customers, converting relatively few
enquiries into completed loans, and
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The Intermediary | October 2026
relying on successful cases to cover the
unsuccessful ones.
Lead generators and aggregators
play an important role, but the fees
they charge brokers per qualified
lead are typically around £120, that’s
a lot of money when most leads
don’t convert. Is buying more leads
the answer? Would a reduced lead
cost and closer cooperation between
lenders and brokers produce fewer
wasted applications and lower costs?
Just because you can
Debt consolidation remains a major
part of second charge lending, and
it’s where good advice makes a huge
difference. Imagine a homeowner
juggling several credit cards and
personal loans. Their monthly
commitments are uncomfortable, and
a second charge could substantially
reduce their outgoings.
That might be exactly what they
need. But spreading debts over a
longer period could mean paying
considerably more interest overall.
And previously unsecured debts are
now secured against their home.
Neither automatically makes
consolidation wrong, especially
when the driver is reduced monthly
outgoings, but customers must
understand the trade-off.
At UTB, we’re particularly alert
to repeat consolidation. If someone
has previously consolidated debts,
only to accumulate more unsecured
borrowing and return for another
loan, we need to understand
what’s happening. An affordability
calculation might say yes. Common
sense might suggest asking a few
more questions.
The FCA also identified affordability
assessments overlooking ordinary
living costs, including childcare and
household repairs. Washing machines
BUSTER TOLFREE
is managing director –
mortgages, BTL and bridging
at United Trust Bank
don’t tend to wait until the mortgage
is repaid before breaking down. Real
life has expenses and our assessments
must reflect them.
A different league
Most lenders measure brokers and
distribution partners on volumes,
conversion rates and completions.
They’re important commercial
indicators. But what if lenders gave
equal aention to the quality of
business introduced? Or brokers
measured lenders customer outcomes?
Lenders could examine advice
quality, customer understanding,
fees, brokers could examine
complaints and early arrears, with
everyone identifying which routes
to market consistently produce good
outcomes rather than simply the
most applications.
A great opportunity
I don’t see the FCA’s intervention
as a reason to be pessimistic. Quite
the opposite. The market has grown
because second charges fulfil a genuine
need. They allow homeowners to
access equity without disturbing
an aractive first mortgage and
fund everything from home
improvements to carefully considered
debt consolidation.
But we shouldn’t wait for another
regulatory review before addressing
the weaknesses identified. If we make
customer acquisition more efficient,
demonstrate the value of advice
more clearly and measure success by
quality as well as quantity, we’ll have
a stronger industry and probably
happier customers too. ●
