26 September, 2014
Regulation of second charge mortgages will move from the FCA’s consumer credit regime and will be governed by mortgage rules from 21 March 2016, the FCA has proposed.
Under the proposals, second charge firms would be required to comply with FCA mortgage rules in areas such as affordable lending, advice, and dealing with payment difficulties.
Christopher Woolard, FCA director of policy, risk and research said: “We recognise that second charge mortgages are beneficial for some customers but we are concerned that consumers can be put at risk by poor sales practices and ineffective affordability assessments.
“Given the risk of consumer detriment, we want to embed good practice and we believe that applying our mortgage rules is the best way to do this.”
The FCA will also expand on the MMR advised sales rule which requires firms to notify customers applying to remortgage that a further advance with their existing lender may be more appropriate.
With the transfer of second charge into the mortgage regime the FCA proposes that where a customer is considering raising additional monies through a remortgage of their first charge loan, the firm informs them that it may be possible or more appropriate to obtain a second charge mortgage or an unsecured loan, as well as a further advance.
This is also set to work vice versa where a customer applying for a second charge mortgage would need to be informed that it may be possible or more appropriate to obtain a further advance with their existing lender, a remortgage or an unsecured loan.
The FCA also said that some bridging loans may fall under the Mortgage Credit Directive obligations as its exemptions for bridging are narrower than the ones currently offered by the regulator.
As such for a bridging loan to be exempt it must either have no fixed duration or be due to be repaid within 12 months and used by the consumer as a temporary financing solution while transitioning to another financial arrangement for the immovable property.
The regulator expects to begin accepting applications from second charge firms who wish to add regulated mortgage activities after 1 April 2015.