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Regulation of second charge mortgages

This article is part of
Guide to Second Charge Mortgages

Nuala Wheeldon, compliance director of Fluent Money, says regulation will mean second charge lending will be on a level playing field with its first charge cousin.

She says this can only be a good thing for convincing all first charge mortgage advisers that secured loans have really come of age.

Consequently, Ms Wheeldon says it will raise the profile of the industry and because of the very evident changes that have led to such a transparent product as we have now and the drive for greater professionalism, allied to full integration into the regulatory framework, the second charge industry can now thrive.

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The only ‘loss’ will be those peripheral advisers who will find the new regulatory regime and the need for qualification too difficult, she adds.

Second charges have been regulated by the Financial Conduct Authority under the Consumer Credit Regime since 1 April 2014.

By 21 March 2016, second charge loans will be transferred out of consumer credit into the mortgage regime to coincide with the implementation of the Mortgage Credit Directive, which will apply to both first and second charge mortgages.

This means that, for the first time, the same regulatory framework will apply to both mortgages and second charges.

To carry out second charge mortgage business after 21 March 2016, lenders, administrators and intermediaries will have to be authorised and hold the correct mortgage permissions from this date.

The City watchdog states it will contact authorised first charge firms in late 2015 or early 2016 to understand whether they will carry out second charge activities from 21 March 2016 – when second charge loans fall under their gaze.

While the impact of regulation on the second charge mortgage market is not yet known, Marie Grundy, managing director of V Loans, says it is likely, as was the case following the implementation of the Mortgage Market Review, that there will be some borrowers who may not meet some of the more stringent affordability requirements.

She says regulation is therefore likely to reduce average loan sizes.

However Ms Grundy says the alignment of regulation between first and second charge mortgages, combined with the new disclosure requirements placed upon mortgage advisers, will mean that there is an obligation for advisers to make borrowers aware that a second charge might be more appropriate for their circumstances.

This will undoubtedly lead to an increasing number of mortgage advisers who will be proactively comparing a remortgage to a second charge, she says, making it an integral part of their advice process to ensure that they are delivering the best advice solution and good customer outcomes as a direct result of this.