The FCA plans to turn on the new rules for second charge mortgages early, from 21 December 2015, to allow firms to manage their sales pipeline more smoothly.
However the regulator has stated firms can be allowed to comply with the final rules from 21 September 2015, six months in advance of the implementation date for the MCD, should they wish to.
According to the watchdog, second charge mortgage lenders welcomed the flexibility of being able to apply the rules early. However, many were concerned that the new rules for second charge mortgages did not explicitly recognise the sales pipeline.
Industry representatives also made this point strongly to the government in response to its consultation on the legislation.
As a result of these concerns being raised by lenders, the Treasury provided further clarification on its implementing legislation in its summary of consultation responses.
HM Treasury states: “The government has also made it clear that, where credit is granted pursuant to an agreement that exists before the implementation date of 21 March 2016, the affected mortgage does not need to be subject to the Mortgage Credit Directive.
“It will be for firms to assess when an agreement exists; and that question is a matter of fact and law that may depend on the practice of the individual lender.
“However, for example, it may be the case that an agreement exists at the formal offer stage of the mortgage lending process.
“Where such an agreement exists before 21 March 2016 the regulatory treatment as it was prior to the amendments to implement the MCD can be applied.”
The government also states second charge firms will be able to adopt the MCD provisions voluntarily from September 2015 and that where they do so Consumer Credit Act requirements will not apply.
However at the time of producing this guide the FCA states the legislation in its current form may not disapply the Consumer Credit Act requirements in all circumstances, “but we understand that the government intends to resolve this before September 2015. We will amend our rules to reflect any change”.
Marie Grundy, managing director of V Loans, says given the substantial systems development required, coupled with the in-depth authorisation process to hold the relevant permissions to trade under the new regime, few firms would be in a position to make the move until the start of 2016 at the very earliest.
She says trade bodies representing lenders and second charge brokers, as well as industry working groups, are working closely together to try to minimise the impact on borrowers.
Ultimately Nuala Wheeldon, compliance director of Fluent Money, says advisers should try to ensure they do not have pipeline business that does not complete until after the change of regulation.
Ms Wheeldon says: “Any business not completed under CCA agreements before 21 March will not be allowed to complete after that date.
“Brokers who are thinking ahead will, with the help of most forward thinking lenders and packager distributors like Fluent Money, have already put in place a move over to the MCOB rules by 1 February next year, in advance of the deadline.”
