The Mortgage Credit Directive (MCD) will impact on many firms in the mortgage market, in particular second charge lenders and intermediaries who have been brought within the scope of the FCA’s mortgage rules for the first time.
Our overarching approach has been to minimise market disruption while ensuring consumer protection. So we have sought to use our existing rules wherever possible to meet the Directive requirements, but there will be changes first and second charge mortgage firms will have to make.
All firms are now able to apply the new rules ahead of the 21 March 2016 deadline, and we know many are already thinking about what changes they need to make.
Second charge
It is essential for second charge firms to ensure they hold or have applied for the relevant mortgage permissions if they intend to carry on lending, administrating, advising or arranging second charge mortgages. This
includes those administering a back book of second charge mortgages entered into prior to 21 March 2016.
Firms also need to understand how we expect them to conduct themselves. This includes treating customers fairly and familiarising themselves with our rules. For example, our affordability rules require lenders to demonstrate that they have assessed a mortgage as affordable for the individual customer.
Similarly, our sales requirements mean that advisers must be suitably qualified, and consider a range of relevant factors when recommending a mortgage. While many of the changes relate to the sales process, firms will also need to comply with our post sales requirements, such as dealing with customers in arrears and regularly reporting data to us.
Disclosure requirements and binding offers
Although the MCD is closely aligned with our existing mortgage rules, there are also some new requirements for existing regulated mortgage firms to meet. These include new disclosure obligations affecting how intermediaries describe their service, the product information consumers must receive and the introduction of binding offers in the mortgage process. Firms will need to ensure their systems are MCD compliant and remain fit for purpose.
Pipeline applications
We want firms to think now about how they will manage pipeline applications – those received before 21 March 2016, but where the agreement comes into being after this date. Lenders and intermediaries will want to consider what steps they should take so that these cases can progress smoothly and minimise the need for duplicated processes and disclosure. Applying the new rules early will clearly help. Ultimately we hope that, as far as is possible, the changes to the first charge market are relatively smooth from a customer perspective.
To help achieve this we encourage firms to talk to their stakeholders to ensure all parties involved in the sales and administration process understand what is expected from each other.
Further information on the MCD and applying for the correct permissions is available on the FCA website.
We have also published several factsheets and other material tailored to the different types of firms affected by the MCD. Our online rulebooks can be ‘time travelled’ to see the rules that apply at future dates. The FCA website also includes information for firms that intend to undertake consumer buy to let activities who will be affected by the MCD changes and need to apply for registration.
