Changes to shared equity and second charge schemes

You need to be aware of new rules that have come into force as a result of the Mortgage Credit Directive (MCD) being implemented, as it affects house builders with second charge and shared equity schemes.

Since 21 March 2016, our rules have changed to bring second charge mortgage lending into the wider mortgage regime rather than the consumer credit regime. All lending secured on the borrower’s home is subject to our mortgage regulation.

If you have past or present shared equity or second charge schemes, or are planning to offer them, you may need to take action.

MCOB protections

Second charge loans that were previously regulated under the consumer credit regime have transferred into our mortgage regime and are subject to the Handbook Mortgage Conduct of Business (MCOB) rules. This means MCOB protections that apply during the life of the loan, such as:

  • post-sale disclosures (eg, annual statements)
  • contract variations
  • charges
  • payment shortfalls and repossessions

apply to existing regulated loans, as well as to all new loans.

There are some exemptions:

Options for house builders

If you do not hold the appropriate permission you must stop carrying on this regulated activity (which includes holding or administering any back book loans) or you will be be operating illegally and committing  criminal offence.

Apply for authorisation

If you wish to administer a back book of shared equity or second charge loans, and/or would like to originate new loans and hold these loans, then you must apply for authorisation.

The types of mortgage permissions that house builders may need, depending on the regulated activities undertaken, are:

  • entering into a regulated mortgage contract as a lender
  • administering a regulated mortgage contract
  • advising on regulated mortgage contracts

Outsource to a third party

If you hold a back book of shared equity or second charge loans and do not plan to originate any new loans, you can employ a third party who does hold the required permission to administer your back book. This allows house builders to retain their back books without having to directly seek authorisation for administration.

Write off loan and release charge

If you currently hold a book of shared equity or second charge loans, and do not intend to offer these loans in the future, one option would be to write off the loan and release the second charge over the property.

Becoming authorised

See the MCD page for information on becoming authorised. If you are unsure whether your firm needs to be authorised you should take appropriate legal and professional advice.


Government schemes like Help to Buy will remain exempt following the MCD’s introduction. But for joint schemes between government and house builders (eg, HomeBuy Direct and FirstBuy), the exemption only covers the government portion.

If you are a house builder, you will need to consider the options set out above for your own portion.

Back book loans that were exempt under the consumer credit regime will remain so.

Other exemptions that may apply are shown in our Handbook.

Further information