By now everyone should be familiar with the Mortgage Credit Directive (MCD), which comes into effect on 21 March.
Second and subsequent charge loans will become regulated under Mortgages: Conduct of Business, and the advice process will be the same for both. However, if you intend to stay as an independent adviser you will need to include second-charge loans in your scope of service even if you have never previously done so. If not, you can no longer hold out as independent. This could mean changing the name of your firm and the consequent changes flowing from this.
Thanks to European rules, it will be necessary for all MCD mortgage credit intermediaries that offer limited services to compile a list of all of the lenders being used. The simplest way to deal with this, unless tied to a single lender, is to create a signposted appendix to your initial disclosure.
Irrespective of whether your service is limited or not, your initial disclosure will need to flag that information on the commission rates from the lenders you recommend can be provided to the client upon request.
The second major consideration involves changes to the lender side. In future, lenders will be offering a mortgage illustration via an Esis (European Standardised Information Sheet), which will confirm the annual percentage rate of charge (ARPC), including any broker fees.
You will therefore need to inform lenders of your broker fee – if any – for that mortgage advice so it can be included in any calculation, irrespective of whether these have been added to the loan or not, as the APRC must include all of the costs of obtaining credit.
Thirdly, although buy-to-let will typically remain outside the scope of MCOB, under MCD the Financial Conduct Authority is required to maintain a directory of firms who are providing consumer BTL services. If so, you must contact the FCA to register and then keep appropriate records of all your activity, which they can request at a later date.
This will be a straightforward task for most who have mortgage permissions. The challenge will be in the definition of consumer BTL (CBTL), which effectively amounts to one that is not a business BTL.
In addition, scheme abuse such as putting forward a BTL application that is actually for occupation by the owner or a defined category of relative, in order to circumvent more stringent affordability tests, is clearly inappropriate and could see advisers removed from the lender’s panel and potentially investigated for mortgage fraud.
And if you are going to be active in the BTL market, make sure you are aware of what constitutes CBTL and how to manage the attendant disclosure. Be mindful of the fact that consumers have Financial Ombudsman Service rights for CBTL cases, but not where the circumstances mean it is a business BTL.