There has been much talk about the Mortgage Credit Directive (MCD) and how advisers will be affected and what they should do to prepare. MCD brings into regulation some areas of the specialist markets such as second charge loans and certain types of buy to let.
There have already been other changes for the specialist market to adjust to, such as consumer credit changes. Credit broking is one of the Consumer Credit permissions which provides regulation for the products that traditionally have sat outside of full mortgage regulation such as commercial mortgages and buy to let. Previously managed by the Office for Fair Trading, this regulation now falls under the responsibility of the Financial Conduct Authority (FCA) but under a different regime from regulated residential loans.
On 21 March 2016, as part of MCD, buy to let will be split into two types, business and consumer buy to let. Consumer buy to let applies to clients that have taken out a buy-to-let mortgage by circumstance, rather than having made a business decision to enter into the contract.
One example is an existing homeowner keeping and letting out their home as they have been unable to sell it. These customers will be regulated under the new regime for consumer buy-to-let, and the clients will have the full recourse available from The Financial Ombudsman.
So as specialist advisers, we actually now have at least four different FCA regimes and handbooks to adhere to.
1) Consumer Credit – for commercial mortgages
2) Regulated Mortgage Permissions – for residential first and second charges
3) Consumer Buy to Let – for individual buy-to-let loans for protected consumers
4) Insurance mediation – for property insurance, life cover and so forth.
Each of these come with their own separate FCA rule book, although there are some common rules across all of the regimes such as the 11 Principles of Business.
Bizarrely from 21 March, because of the introduction of consumer buy-to-let regulation, business buy to let will no longer fall under any FCA regulation for advisers, not even credit broking. So technically, unqualified and unregulated advisers could be arranging buy-to-let mortgages from 21 March.
To add further to the puzzle, lenders’ requirements do not necessarily align with the regulator’s requirements. So while the FCA will not be regulating a business buy to let, we have not found a single lender who will accept a mortgage adviser that does not have as a minimum the Consumer Credit permission, with many also requiring the full regulated permission. In my mind this effective self-regulation is very important and very much welcome.