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Confusion over regulation of additional borrowing

Confusion over whether additional borrowing falls under Financial Services Authority regulation is baffling brokers and lenders.

Ray Boulger, senior technical manager at Charcol, says: “FSA rules say additional borrowing is regulated, but some lenders have interpreted the rules in a way I don’t think is correct. If you have an existing case that was arranged pre-Mortgage Day and want to borrow more money after M-Day it will be regulated.”

Peter Craddock, general manager of customer services at Skipton, believes extra borrowing comes down to interpretation of the rules. He says most lenders, including Skipton, see it as a new regulation contract but others say it is part of an old regulatory contract that will not fall under the FSA.

Craddock adds: “It can only be a good thing if a person has taken out a mortgage before M-Day and wants to take out additional money after M-Day, that it is regulated.”

The FSA seems to be unclear on the guidelines on additional borrowing. FSA spokeswoman Vanessa Woods says: “It depends on the arrangements and deeds of the lender. We can only give our interpretation of the rules.”

Some experts also feel it is a major oversight not to regulate second charge loans which could be seen as more risky for borrowers than prime mortgages. Boulger believes the Treasury does not understand second charge loans.

And Craddock says: “Second charge loans need to be regulated more than prime lending.”

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Dear Delia

John is a first-time buyer looking to buy a £165,000 flat with his partner. He has been in his job for just four months – he earns £22,000 and last month satisfied a £500 CCJ. His partner earns £24,500 and has no debt. Her parents have offered to pay the 10% deposit on the property as a gift. What options are available to them?

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