Mortgage Credit Directive - Types of loans covered

This first blog on the Mortgage Credit Directive (MCD) is focused on setting out no more than the types of loans that are covered by it and those that are not.

Those loans that are excluded from it are as follows:-

• Lifetime Mortgages, believe it or not, are outside the scope of the MCD although they will of course continue to remain regulated by the FCA. One difference is that the MCD defines lifetime mortgages as any loan where interest is rolled up and no payment is made, regardless of the age of the borrower. The FCA will have to build this into its own rules. The MCD also puts beyond doubt  the fact that equity release loans requiring regular repayments of capital are not lifetime mortgages.

• Bridging loans are generally exempted from the MCD although the MCD apples a narrower definition of bridging that recognised in the FCA handbook. Some loans therefore that are currently classed as bridging loans under FCA perimeter guidance will fall under MCD from 21 March 2016.

• Credit union mortgages – an MCD exemption for credit unions allows the FCA to avoid imposing new requirements, but credit unions will still have to meet FCA existing rules. 

• Overdrafts lasting less than one month – while there are likely to be very few loans of  this kind it might be a useful exemption for some specialist lending, such as for secured overdrafts for high net worth consumers.

• Business lending is largely excluded from the MCD and the FCA  is making no proposals for change here.

Loans that will come into the MCD and therefore FCA regulation  include second and subsequent charge mortgages which the FCA already regulates under transitional arrangements following the transfer of responsibility for Consumer credit earlier this year.

Where products are excluded from the MCD, the FCA wants firms to be able adopt the MCD requirements voluntarily although it makes one exception to this.  Lifetime Mortgages must continue to follow the MCOB requirements for example in disclosure where the existing KFI must be  used rather than the ESIS (European Single Information Sheet) as they believe that the Lifetime KFI serves the customer better than the ESIS.

I note that Sharia mortgages and home reversion schemes ( the latter technically not a mortgage) do not appear to be  referred to in the FCA document and perhaps further clarification might be forthcoming.