From 21 March next year the MCD changes the regulation of second charge mortgages including shared equity schemes and house builders and developers may be impacted.
House builders sometimes offer shared equity loans or incentives of a similar nature, resulting in a second or subsequent charge being taken over the consumer’s property.
Typically, they are provided jointly by a house builder and government (e.g. HomeBuy Direct,
FirstBuy, Scottish Government New Supply Shared Equity with Developers) or through a government scheme such as the Help to Buy equity loan to help fund the purchase of new build properties although they could also be offered by other providers such as mortgage lenders.
In a factsheet published by the FCA, the regulator said: “Any house builder that has an existing back book of second charge or shared equity loans or plans to provide these loans after 21 March 2016 will need to meet these requirements and either be authorised by the Financial Conduct Authority to hold permission to carry out these regulated activities, or appoint a regulated third-party to administer the loans.”
Regulated activities for house builders include entering into a regulated mortgage contract as lender, and/or administering a regulated mortgage contract and/or advising on regulated mortgage contracts.
The Financial Conduct Authority is applying the new rules to both past, present and future schemes and has warned builders to act to comply.
As a result Andy Frankish, new homes director at Mortgage Advice Bureau, said the larger developers have been in talks with third party providers to arrange these loans under their permissions.
He said: “The larger developers are looking at aligning themselves with third party providers but there are also a number that are looking to sell on the back book.”
Shared equity loans are covered by the MCD, except for certain schemes provided by the government and social landlords, which will continue to be exempt.
Government schemes such as Help to Buy are and will remain exempt following the introduction of the MCD.
However, for joint schemes between government and house builders the exemption only covers the government portion and therefore house builders will need to consider their options.
Back book loans that were previously exempt under the consumer credit regime will remain as such, but all other regulated second charge loans that are already in existence will transfer into the FCA’s new regime from 21 March 2016 and become subject to its Handbook rules for Mortgage Conduct of Business.
