The MCD is looming and there is a misconception in some quarters that it applies only to second charge mortgages
Unless you have been living under a large rock for the past few years, you cannot help but have noticed the Mortgage Credit Directive.
When the European Commission published the final text of the MCD back in February 2014, the implementation date of 21 March 2016 probably seemed sufficiently far in the future for advisers not to have concerned themselves with it immediately. But they can no longer afford to bury their head in the sand.
Indeed, given that the FCA has not granted a transition period from the current regime to the new regulatory environment, some lenders are in fact starting MCD lending earlier to ensure cases do not have to be abandoned or restarted as they approach the implementation date.
As well as the looming start date, there exists a misconception in some quarters that the MCD applies only to second charge mortgages and therefore will not impact upon intermediaries that do not 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 one, the reality is that the impact of the MCD will reach beyond conventional second charge mortgages.
A host of loans that are currently not regulated or can utilise exemptions to remain so will become regulated on 21 March. Varied examples 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 regime. Bridging lenders have offered regulated products for some time in the form of regulated mortgage contracts. Credit is given to an individual where the contract provides for the obligation of the borrower to repay, secured by a mortgage on land in the European Economic Area and where at least 40 per cent 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 to the mortgage conduct regime and therefore become regulated mortgage contracts instead of consumer credit. However, less widely publicised is the fact that the high-net-worth Consumer Credit Act exemption commonly used for second charge bridging loans will be removed.
In addition, second charge bridging loans secured on the borrower’s residence – where business or commercial exemptions cannot be used – will also become regulated mortgage contracts.
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 you are likely to recommend to them the most suitable product in the first place, reducing the likelihood of future complaint.
Specialist finance, and bridging in particular, has come a long way in recent years. Extra regulation can only improve perceptions of the industry as a whole.
Danny Waters is chief executive of Enterprise Finance