There is just under six months to go until the Mortgage Credit Directive comes into effect on March 21st 2016.
Historically there has been reluctance from some brokers to view second charge lending as a viable alternative to remortgage products. However, as a result of the Directive, the seconds market will be brought into line with residential mainstream mortgages.
The pending European regulatory framework which will apply to first and second charge mortgages, aims to ensure consumers who buy a property or take out a loan secured against their home are adequately informed and protected against potential risks.
Referring to specialists
As a result, there will be a regulatory standard for those writing or advising on first and second charge mortgages. Brokers will need to be able to recommend a second charge if it is the most suitable option for the client. Therefore, there will be more onus on brokers to make clients aware there are alternatives to a remortgage after the MCD.
Brokers that don’t include advice on second charges in their offering will have to let clients know at the outset, and for brokers to call themselves ‘independent’ after the deadline, they will have to consider second charge mortgages, as well as firsts.
Brokers who are authorised in relation to second charge mortgages on an interim permission basis will need additional mortgage permissions. However, the FCA has been experiencing a backlog, so if you haven’t already applied you need to do so as soon as possible.
There are many changes ahead of us and lenders have the option to bring in the new measures any time from now. Many lenders will choose to bring these forward, as unlike the MMR there is no tolerance period. Any loan that has not completed by the 21st March 2016 will need to be re-written so that it is MCD compliant.
The new regulations include the introduction of the European Standardised Information Sheet (ESIS) which will replace the existing Key Facts Illustration (KFI), although for two years lenders can choose to use a KFI plus which is more detailed. This means over the next six months brokers may well be faced with the KFI, KFI plus or the ESIS and will need to be prepared to explain this to their clients.
The bulk of lenders are expected to bring in their MCD measures at the turn of the year, so brokers that haven’t done so already should now urgently familiarise themselves with the changes, so they can easily transition to the new regime.
Complying with new standards
In order to stay ahead of the curve, some brokers are complying with MCD standards now, including looking at a second charge rather than a remortgage or a top up loan. After all, if there is a more suitable option, why wait for the MCD?
If you are unfamiliar with second charges, there are specialists, like Brightstar, who can help you find out what the options are, including the range of lenders and products, so you can understand what is available in the market and what else you can offer your clients.
By working with specialists, brokers can ensure compliance while also gaining valuable access to a depth of knowledge and experience, allowing them to source the best possible products to suit individual client circumstances and requirements.
Preparing for change
The MCD will be a learning curve for all involved and, as a result, the second charge market will thrive over the next few years. It will be a great opportunity for many brokers who are currently unaware of the benefits of second charge products, and as confidence grows and strong relationships are built, passing a client to a specialist third party will become second nature.
Although some see the Directive as a compliance threat, I believe it is a great business opportunity; those who consider second charge mortgages will be making the most informed choice to benefit their business and their client. It is therefore time for brokers to get to grips with the implications of the transition and make the necessary preparations in order to take on a whole new era of compliance.