The FCA’s increased scrutiny of the second charge market should be welcomed by anyone who believes in the value of good advice.
Understandably, recent work has largely focused on debt consolidation.
The regulator found examples where affordability assessments overlooked important expenditures, advisers did not adequately investigate the reasons behind the build-up of unsecured debt, and consolidation alternatives were not always properly considered.
Reducing monthly expenses can create financial flexibility
These are legitimate concerns. But we have to be careful that scrutiny of poor practices does not create the impression that using a second mortgage to consolidate debt is an inherently bad outcome. Because it simply isn’t. The FCA itself has previously acknowledged that debt consolidation through secured borrowing could be the right solution for some clients, provided it is affordable.
Starting point
The important words are “for some customers”. The starting point isn’t just whether someone qualifies for a second mortgage. We need to understand why they need it. If they accumulate unsecured loans, there is little value in consolidating those liabilities without understanding how they arose.
Was it a one-time period? Have family circumstances changed? Will childcare costs rise? Is income likely to change? Obviously, consolidating £30,000 of unsecured borrowing, so that the client can accumulate a further £30,000 because the underlying affordability issue remains, would not represent a good outcome. The goal should be sustainable improvement in the client’s financial situation.
Understand the client’s circumstances and why the debt exists. Check expenses properly
There should also be no second fees in isolation from other options. Can the customer get an additional advance from the current lender? Would refinancing be more convenient? Should arrangements with existing creditors or other forms of debt support be considered instead?
A compelling alternative
However, there are circumstances in which the second charge can provide a compelling alternative. The borrower may have an attractive subprime mortgage and doesn’t want to bother with it. Remortgaging their entire balance to raise a relatively modest additional amount could mean moving significantly more borrowing to a different rate.
The second charge allows the existing mortgage to remain unchanged while additional borrowing is assessed separately. This doesn’t automatically make it true. It simply makes it an option worth considering. This is the most important thing consultants need to have in the conversation about inclusion. Moving unsecured borrowing to a mortgage can significantly reduce monthly spending, but extending borrowing over a longer term can also increase the total amount of interest paid. It also turns previously unsecured borrowing into debt secured by the customer’s home.
The FCA’s increased scrutiny should be welcomed by anyone who believes in the value of good advice
These trade-offs cannot be buried under attractive monthly savings. The FCA specifically requires advisers considering debt consolidation to take into account, where appropriate, the cost of increasing the repayment period and whether it is appropriate to secure previously unsecured borrowing. Therefore, customers need to understand both sides of the equation.
Meaningful improvement
But there is another aspect of affordability that should not be ignored.
For some families, reducing monthly obligations can create financial flexibility that didn’t exist before. If restructuring their borrowing means they can stop living on the edge of their monthly income, and start building savings and creating a buffer against unexpected expenses, then this could represent a tangible improvement in their financial situation.
Term is another important consideration. Our approach is to identify what is truly affordable while keeping the borrowing period as short as possible. Sometimes customers choose to align the second charge with their existing mortgage, while overpayment facilities can provide the opportunity to reduce the balance more quickly when circumstances allow.
The structure should reflect the customer’s circumstances rather than simply producing the lowest possible monthly payment. There is nothing contradictory about supporting FCA scrutiny while also believing strongly in second-fee debt consolidation.
The regulator has previously acknowledged that debt consolidation through secured borrowing could be the right solution for some clients, provided it is affordable.
The regulator is working to reinforce what good specialist advisers should already be doing. Understand the client’s circumstances and why the debt exists. Check expenses properly. Consider alternatives. Explain the consequences of securing unsecured borrowing. Look beyond the monthly payment. Document why the recommendation represents the best results.
Do all that and sometimes a second charge just won’t do. But there will also be customers for whom consolidation through a second shipment provides the breathing room and financial structure they need.
Andy Steen is the second-in-charge mortgage professional at Brightstar Financial
This article appeared in the September 2026 edition of Mortgage strategy.
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