The FSA has outlined the scope of the mortgage regime, but warns that some firms will still need a consumer credit licence.
To avoid dual regulation, mortgages that meet the definition and which could presently be regulated under the Consumer Credit Act (CCA) will become the FSA's responsibility when the new regime goes live.
However, if firms which arrange mortgages within the definition (and which require FSA authorisation) also arrange second charge loans and other mortgages not within the new regime, it is likely that they will continue to need a consumer credit licence.
A mortgage will be regulated if the borrower is an individual or trustee; the lender takes a first legal charge over property in the UK, and the property is at least 40% occupied by the borrower or by a member of his immediate family. The mortgage definition does not cover buy-to-let mortgages (unless the tenant is a member of the borrower's immediate family), second charge loans or any loans to limited companies.
Regulate activities are mortgage lending; mortgage administration; advising on mortgages, and arranging mortgages. Where the regulated activity is carried on from an establishment in the United Kingdom, the firm will need to be authorised and comply with the mortgage rules if the consumer is normally resident in the UK or another European Economic Area (EEA) state.
The FSA has also published draft perimeter guidance to help firms understand the legislative scope, because it may not be clear to all businesses whether an activity is within FSA scope or falls outside the regulatory perimeter.
The FSA has identified a few post-sale contract variations where it consider that rules, particularly in relation to disclosure, should apply. These are further advances, product switches, transfers of equity and transfers between types of mortgages (for example, interest only and repayment mortgages). The FSA's assessment is that these variations are likely to present the same (or lower) risk as the original loan and the FSA has adapted its rules to deal with each variation.