Second charge lenders may be on pause following MCD

Connect for Intermediaries owner Liz Syms said the potential delay in permissions, following the ruling of the Mortgage Credit Directive (MCD) which came into play on 21 March, applies to brokers who typically only advise on second charges and refers to the residential sector only.

“Until 21 March, they [second charge-only brokers] could transact residential second charges under the Consumer Credit Permissions, which were first with the OFT (Office of Fair Trading) and then transferred to the FCA,” said Syms.

“With MCD, residential second charge permission requirements changed. This meant that brokers could no longer trade residential second charges with the relevant Consumer Credit Permission – they needed instead to have Regulated Mortgage Permission.

“Therefore all second charge advisers, who did not operate in the first charge residential market already, would have had to apply for this permission.”

Applications to the FCA for this type of permission can take up to six months to approve and longer if there are application issues, according to Syms.

“I am sure there are some brokers who managed to obtain these permissions in time, where there may be others who are still waiting and therefore can no longer transact this business,” she said.

The issue relates only to residential second charge lending. Commercial second charges still only require a Consumer Credit permission and buy-to-let second charges require no permission at all, said Syms.

“The interest for second charges across all broker types has increased and is fueled by the new FCA requirements,” she said.

“These requirements mean that brokers who have second charges as part of their offering do need to demonstrate that they have considered a second charge as an alternative when advising a remortgage client.”

In order to call themselves independent, brokers must now offer both first and second charge advice.