After recently chairing Mortgage Solutions‘ Mortgage and Protection Event, which played to hundreds of advisers over its four-day course, it became apparent that some advisers weren’t fully aware of the considerations that should be made in order to prepare for the upcoming MCD.
Although the regulation may seem complex initially, the main requirements can be simplified into four key points which brokers will need to decide on ahead of the changes. Only once brokers have an answer for each of these points can they consider themselves ready for the MCD.
How to interpret the MCD?
Firstly, it’s important for brokers to note that all lenders are interpreting the rules differently. The Financial Conduct Authority (FCA) is allowing them to phase in the regulation any time between now and the final deadline in March 2016.
Additionally, although consumer buy-to-let mortgages fall under the MCD rules, business buy-to-let loans do not. Given that different lenders have different interpretations as to what constitutes a consumer buy-to-let loan, the requirements for these may differ depending on the provider of the mortgage. These two anomalies, among others such as whether lenders will use European Standardised Information Sheet (ESIS) or Key Facts Illustration+ (KFI+), will undoubtedly make life difficult for brokers unless they familiarise themselves with the approach that each of their partner lenders are taking.
Brokers therefore need a single point of reference that they can go to find out which rules lenders are adopting and when. Our MCD Hub has been built with this in mind, to provide brokers with information on the rules. Within the hub, we’ve compiled an MCD Matrix, which details the approach that lenders are taking, and when they plan on enforcing the new rules. This will continue to be updated when more lenders announce their plans.
Second charge loans
Secondly, brokers will need to decide their position on advising on second charge mortgages. After the introduction of the MCD rules, brokers will have three choices regarding second charge loans, as it is now coming under the same regulations applied to first charge mortgages.
Brokers therefore need to state their position on how they’re going to advise in this area of the market post-MCD. They may decide to fully advise on second charge loans themselves, not advise at all, or they can refer their customers to a third party. If brokers choose not to advise at all, they must ensure that the customer is aware of this so that they know that it’s available to them as an option.
Are you really independent?
Thirdly, the rules behind whether brokers can refer to themselves as independent or whole of market are changing as a result of the MCD. In order to continue defining themselves independent or whole of market advisers, brokers will need to offer advice in every area of the market, including equity release and second charge products. During the MCD panel debate at the Mortgage and Protection Event, it became apparent that brokers were unaware of this issue.
Consumer buy to let
Finally, brokers will need to apply to register with the FCA in order to be able to advise on consumer buy-to-let products post-MCD. There is a registration fee for this which will be between £100 and £500. If they fail to do this by the MCD deadline in March, they won’t be able to advise in this area of the market. It’s also advisable for brokers to register sooner rather than later, as there is likely to be a rush of people looking to register as we draw nearer to the March deadline, which could delay people’s applications.
Although the industry doesn’t expect the MCD to have a major impact, there are a number of things that brokers need to do now in order to prepare for the MCD. If brokers leave the above steps to the last minute, they risk not being compliant with the new rules. Not being ready could affect how they trade. It’s therefore crucial that brokers act now to prepare for the MCD to ensure that everything remains business as usual after the deadline in March.
Are you ready for the MCD? Let Mortgage Solutions know in this week’s poll.
