Industry bodies, networks and the regulator are all attempting to raise awareness amongst brokers of the fact they will lose the ability to call themselves independent if they do not offer both first and second charge mortgages by next Spring
The EU-wide Mortgage Credit Directive is due to be implemented on 21 March and does not make any distinction between first and second charge mortgages, an area which Financial Conduct Authority technical mortgage specialist Keith Hale warned that the industry must prepare for.
The regulator explained that there are limitations on the range of products an MCD intermediary can offer, with the relevant market for any firm’s scope of disclosure consisting of all regulated mortgage contracts, whether first or second charge.
So a firm only offering products from one part of the relevant market (such as first charge only) should not disclose their services as unlimited. It also follows that in respect of sales to which the MCD applies, an intermediary can only describe its scope as ‘independent’ if its consideration of mortgages is unlimited.
Mr Hale previously stated: “For those in the first charge market, firms must do a proper walk through of their systems and processes, brokers need to look at their service and product disclosure, as well as remuneration - no sales targets - and also ask whether they will restrict their ranges to first or second charge?”
Association of Mortgage Intermediaries chief executive Robert Sinclair said his team has been working its way round the country talking to advisers about this issue, with many of them realising the ramifications for the first time.
“It’s an interesting challenge, but we agree with the regulator that they aren’t great labels anyway, advisers should be asking themselves whether they are truly across the market with what they offer, as ultimately the FCA is just looking for consumer clarity.”
In terms of advisers adding second charge in response to the MCD, he said that IFAs with mortgages within the scope of what they do need to think about this now. “Some have been engineering it using sourcing systems, while others are contracting out to master brokers,” said Mr Sinclair, adding that mortgage clubs are also aware and many are trying to help.
Richard Adams, managing director of mortgage network Stonebridge Group, expressed concern around brokers being able to call themselves independent once the MCD comes into force.
“If they can’t offer whole of market in terms of first and second charge mortgages then they will have to become restricted.
“This could be a real worry for many of our members and it’s also confusing for customers. There should be differentiation in disclosure requirements between first and second charge.”
Last month, FTAdviser revealed that three advisory firms had been given authorisation for second-charge mortgage broking by the FCA, following it starting to accept applications on 20 April.
Another five firms are in the process of applying for full authorisation for second-charge mortgage broking, with a further eight firms in the process of applying for the lending authorisation. In both cases no firms have yet been refused authorisation.