MCD: FCA retracts proposed first-charge rate rule for second charge lenders

The FCA's final rules for the Mortgage Credit Directive have been published today, with the regulator having amended its original proposals on the requirement for second charge lenders to consider the impact of rate rises on the first charge mortgage.

Related topics:  Mortgages
Amy Loddington
27th March 2015
FCA

The Government has decided to move the regulation of second charge mortgages into the mortgage regime when the UK implements the MCD.

The policy statement said that the FCA 'received strong support for most of our proposals for regulating second charge mortgages'.

Although some industry participants argued for more time to implement the advice rules, others preferred a single implementation date.
 

The vast majority of respondents to the original consultation agreed with the FCA’s proposal that, as part of the affordability assessment, second charge lenders must consider the impact of expected interest rate increases on existing higher priority mortgages – as well as on the second charge mortgage they are granting.

However, industry representatives expressed concerns about how this would work in practice. They thought that consumers would not know the interest rate of their existing mortgage(s), and were concerned about the delays and costs that would arise if second charge lenders were required to obtain that information from other sources, such as directly from the first charge lender.

The regulator has therefore amended the rules to remove the need to obtain the interest rate, adding:

“This should simplify the requirement for firms, as they can get the Financial Conduct Authority March 2015 19 PS15/9 outstanding balance (and current payment) from a credit reference, but without materially impacting the outcome for consumers. We expect that this will reduce costs to firms compared to the original proposal.”

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