FCA outlines approach for implementation of Mortgage Credit Directive and regulatory framework for second charge mortgages

Published: 25/09/2014     Last Modified: 01/10/2014

The Financial Conduct Authority (FCA) has today set out plans to bring second charge mortgages under FCA mortgage rules and laid out how they intend to implement the Mortgage Credit Directive.

The FCA has proposed that from 21 March 2016 the regulation of second charge mortgages should move from the FCA’s consumer credit regime and instead will be governed by mortgage rules. Under the proposals, second charge firms would be required to comply with FCA mortgage rules in areas such as affordable lending, advice, and dealing with payment difficulties.

Christopher Woolard, FCA director of policy, risk and research said:

'We recognise that second charge mortgages are beneficial for some customers but we are concerned that consumers can be put at risk by poor sales practices and ineffective affordability assessments. Given the risk of consumer detriment, we want to embed good practice and we believe that applying our mortgage rules is the best way to do this.'

The FCA plan to bring second charge mortgages into the existing mortgage rules from March 2016. The consultation paper also outlines the authorisation process for these firms and sets out the proposed data reporting requirements for second charge firms.

In the same consultation the FCA has also laid out how it plans to implement the mortgage credit directive. This will be achieved largely through reliance on existing mortgage rules. But two areas, product disclosure and annual percentage rate of change, require full harmonisation with the new European rules.

A number of other changes will also be implemented including new knowledge and competency requirements, obligations for firms dealing in foreign currency mortgages and new levels of professional indemnity insurance.

Notes for editors

  1. Consultation paper 14/20: Implementing the Mortgage Credit Directive and the new regime for second charge mortgages.
  2. Second charge mortgages are a type of mortgage that can be taken by an existing borrower on top of their main (or first charge) mortgage.  They are a secured loan, which means they use the borrower’s home as security. Many people use them as a way to raise money instead of remortgaging.
  3. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  5. Find out more information about the FCA.

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