January 29, 2016
Unless you’ve been living under a particularly large rock for the last few years, you can’t help to have noticed the Mortgage Credit Directive (MCD) and the extensive preparations that the specialist finance industry has undergone to ensure readiness for the new regime. At Enterprise HQ it’s been on our radar for some time and we secured the necessary variation of permissions from the Financial Conduct Authority (FCA) last summer, well in advance of the implementation date. As well as getting our own house in order, we’ve been doing everything we can to help intermediaries get up to speed, including producing an illustrative guide and helping walk advisers through various scenarios that might unfold in the new world.
When the European Commission published the final text of the MCD back in February 2014, the final rule implementation date of March 21st 2016 probably seemed sufficiently far in the distance for advisers to not have to immediately concern themselves with it, but given the deadline is now looming they can no longer afford to bury their head in the sand. Indeed given that the FCA does not allow a transition period from the current regime to the new regulatory environment, some lenders are actually commencing MCD-lending earlier to ensure that cases don’t have to be abandoned or restarted as they approach the implementation date. Indeed, West One Loans will be commencing MCD lending from 15th February for this very reason.
As well as the looming implementation date, there exists a misconception in some quarters of the industry that the MCD only applies to second charge mortgages and therefore won’t impact upon intermediaries who don’t offer secured loans to their customers. Leaving aside the obvious fact that advisers should be offering their clients the widest range of products in order to increase the chances of finding them the most suitable product, the reality is that the impact of MCD will reach beyond conventional second charge mortgages.
A whole host of loans that are currently not regulated or can utilise exemptions to remain so, will become regulated as of March. Varied examples of this include lending to experienced landlords who secure loans on their investment properties for the purpose of their residential property or lending to purchase or renovate a buy-to-let property where the borrower is doing so as a consumer rather than acting for the purposes of business (such as an inherited property). The latter falls under the FCA’s new Consumer Buy to Let (CBTL) regime, another acronym brokers will be hearing a lot more of going forward.
Bridging lenders have offered regulated products for some time now in the form of Regulated Mortgage Contracts (RMCs) where credit is provided to an individual, where the contract provides for the obligation of the borrower to repay secured by a mortgage on land in the EEA and where at least 40% of the land is used in connection with a dwelling. It is well documented that second charge mortgages will move from the Consumer Credit Act (CCA) to the mortgage conduct regime and will therefore be RMCs instead of consumer credit, but what has been rather less widely publicised is the fact that the high net worth CCA exemption commonly used for second charge bridging loans will be removed. Also, second charge bridging loans secured on the borrower’s residence – where business or commercial exemptions can not be used – will also become RMCs.
This may all seem like a lot for brokers to digest, but specialist loan distributors like ourselves and lenders like West One Loans will be on hand to answer any queries intermediaries have and help guide them through the process on loans that were previously unregulated which will now come under the auspices of the FCA. A lot of our staff are currently undergoing CeMAp training and all staff involved in the manufacture of mortgages or granting credit must demonstrate knowledge and competency by March 2017.
Regulatory red tape can sometimes feel like an extra logistical task on top of the day job, but once the familiarisation process is complete it will soon become second nature. And while protecting the best interests of consumers is at the heart of this additional legislation, all stakeholders in the industry will benefit from the new regime. Clearer protection and guidance for your clients means that not only are you likely to recommend them the most suitable product in the first place, but also reduces the likelihood of future complaint. Specialist finance and bridging in particular has come a long way in the past few years and increased regulation can only improve perceptions of the industry as a whole.
Danny Waters is Chief Executive Officer of Enterprise Finance. This article first appeared in Mortgage Strategy.