MCD: lifetime mortgages could be caught by new rules

In the final rules for the Mortgage Credit Directive published today, the FCA confirmed that lifetime mortgages will remain exempt from the MCD.

Related topics:  Mortgages
Rozi Jones
27th March 2015
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The report stated:

"We think it is appropriate to apply this exemption because the MCD is not designed for the distinctly different nature of lifetime mortgages."

However, because the MCD definition (which excludes products that require repayment of capital during the term) is narrower than the FCA's existing definition, there is a potential for some lifetime mortgages to be caught by the MCD, eg future products that require payment of capital during the term, meaning that the ESIS will apply instead of the tailored KFI.

The FCA argue that this has the potential to harm consumers, as those people taking such mortgages would not receive the standard of advice expected for lifetime mortgages. While lifetime mortgages requiring repayment of capital are not a feature of the current lifetime mortgage market, such products might be developed in the future.

Therefore, the FCA have announced that it will require firms to provide additional disclosure to the consumer alongside the ESIS. This will set out information on the key risks of a lifetime mortgage that would otherwise be provided in the tailored lifetime mortgage KFI.

The FCA said:

"We do not consider that this change in approach to the lifetime mortgage definition will mean new costs to firms in the short term as we are not aware of any products currently available which would qualify as an MCD lifetime mortgage.

"Any firms providing these products in future will incur some general set up costs from having to develop appropriate systems to comply with the MCD, including the ESIS, and the development of the additional disclosure will form part of this.

"We are aware of the potential for new lifetime mortgage product variants to be developed, in addition to the recent launch of some ‘hybrid’ lifetime mortgages that facilitate the payment of interest during the mortgage term. To foster innovation that serves consumer interest we are interested in talking to firms developing new lifetime mortgage products so we can consider how we may need to adapt our regulatory approach, whether through future rule changes, or through individual waivers or modifications."

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