The UK first and second charge markets will become one secured lending market when the European Mortgage Directive is implemented in 2015.
Elsewhere in the EU no such distinction is made and it exists only in the UK because the Treasury decided to regulate the first mortgage market assigning it to the control of the Financial Services Authority, as it was.
Speaking at last week’s Financial Services Expo Lynda Blackwell, director of mortgages and consumer lending at the Financial Conduct Authority, said: “As we go forward into the future we are going to have a secured lending market with no distinction between first and second charges other than the way we decide to regulate them.
“When the mortgage directive comes in we expect that the second charge market will move into the mortgage regime and we need to work closely with that industry to see how it can work.”
Blackwell admitted that the FCA knew very little about the second charge market so it was receiving help from a representative group from that sector to educate them how the market works and to gather their opinions on what impact they think the directive will have on their market.
She said the FCA had begun to realise, whilst drafting a working paper for the second charge market, that the sales process for second charges was very different to that of mortgages.
Because of these differences Blackwell said it was important that the rules applied to seconds were proportionate to the characteristics of this loan type.
She said: “We are very conscious that we have got to be proportionate because it is a very different market.”
The final details of the directive are expected to be published in November this year and the UK has two years and twenty days to implement it into the UK framework.
The FCA said there will be “a lot of thinking to do” and welcomes input from the industry.