Second Mortgages will be leaving the familiar framework of the Consumer Credit Act and embracing a new world, within the rules and regulations of the Mortgage Credit Directive.
As a European directive, the MCD applies to all lending secured on residential property throughout the European Union and is based on the simple theory that the same rules should apply whether you are looking at a first or subsequent charge.
This means that the artificial division between first and second mortgages will end - resulting in new opportunities and challenges for all. This makes complete sense and is in many ways long overdue.
The FCA published its interpretation and requirements in relation to the implementation of the European Mortgage Credit Directive on 27 March earlier this year. The 319 page document was a lot to digest and this can make preparing for regulation appear daunting and at times overwhelming.
However I can’t stress enough that the preparation needs to begin now for those who are not ready. Without careful planning and management, firms could find themselves going into 2016 with a real headache.
The first area that has to be considered by financial intermediaries is the authorisation process. It is important for a broker and IFA to be clear on the activities and services they want to offer post regulation day and then identify what permissions and relationships they will need to have in place.
The way that secured loans are going to be administered will also change, including the introduction of the ESIS, the form which must be used to explain to customers the implications of borrowing, in terms of charges and conditions.
Adapting systems and technology to cope with regulatory change will also be a challenge, especially under time pressures.
Throughout my engagement with brokers and IFAs across the UK, I really have been pressing home the message that if they are serious about secured loans, then they need to begin preparing now to ensure a smooth transition into the new regulatory regime.
My best advice would be not to get caught in the early part of 2016 thinking that you must start giving consideration to the impending FCA changes, by then it will be too late.
I’d also encourage all firms large or small to at least consider and talk to external compliance specialists who have experience liaising with the Financial Conduct Authority on obtaining permissions.
This will of course bring a financial commitment, but firms may find that the investment pays for itself with the time and effort that is saved.
It’s clearly a time of change for the secured loan industry, but with change comes opportunity.
Opportunity to drive product innovation, provide enhanced transparency for consumers and to work much more closely with the Mortgage Adviser and IFA communities in a period of new regulation.
Taking this approach and empowering customers, will enable the secured loans industry to realise its true growth potential amidst a period of increasing consumer confidence.
