The consultation is out there now and it contains some very interesting views on how the FCA is going to regulate our industry. Second charge mortgages (or as we know them, secured loans) are going to become regulated mortgage contracts and therefore will fall under the majority of the same FCA rules and guidance as current first charge mortgages.
Undoubtedly there are going to be some restrictions that limit certain areas where business is currently written, the obvious one being affordability. More stringent rules regarding stress-testing and income and expenditure will mean some deals written to date will no longer qualify.
The FCA has raised concerns regarding poor practices; not making consumers aware other options may be available, the risks of securing against property, poor affordability assessments and the charging of fees.
There is no doubt that there are areas that the industry can improve on. However, it is also a massive opportunity.
For the first time, first and second charge mortgages are going to have to be viewed together – and that is the opportunity.
When a consumer is raising additional funds they must be made aware of the possible options; a remortgage, a further advance or a secured loan. This can be as part of an initial disclosure rather than as part of the sales process, but it means that second charges will enter the consciousness of a whole new audience.
The new regime will mean lenders can be more creative with their products; fixed rates, the charging of fees and early repayment charges. Rather than having the prescriptive rules that came with the Consumer Credit Act, the lenders in our industry, who have proven time and again their appetite to lend and demonstrated their creativity, now have the ability to design products for a new landscape.
In its paper the FCA said: “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.”
That is going to lead to a more qualified, professional industry with well designed, fit for purpose products.
The next few years are going to be challenging but we have to believe that as an industry we will continue to grow.
The consultation period closes on 29 December.
Anyone wishing to take part in the consulation can complete the FCA’s form HERE or write to Terence Denness, policy, risk and research Division, Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.