Lifetime Mortgages and the Mortgage Credit Directive

I have received a number of questions recently about Lifetime mortgages and how they will fit into or be exempted from the Mortgage Credit Directive. This short blog is intended to provide a little advice on the matter.

Lifetime mortgages will generally be exempt from the MCD but because the FCA definition of a Lifetime mortgage is broader than the MCD definition, there may be circumstances where a Lifetime Mortgage (defined by the FCA) will fall under MCD rules. An example of such a product would be one where capital might be required to be repaid during the term of the mortgage. Such a product would fall under MCD rules and an ESIS (European Single Information Sheet) will have to be issued instead of an FCA tailored Lifetime KFI (as current). HOWEVER. even in such circumstances where the product is under MCD the FCA will insist that the additional safeguards ( qualification and enhanced advice) continue to apply ( over and above the MCD) . The FCA will also require additional disclosure over and above the ESIS to fulfil the UK regulatory requirements for all Lifetime Mortgages. This document would explain the risks associated with such mortgages as this is missing from the ESIS.

What does that all mean then?

1. Current Lifetime Mortgage Products which satisfy both the FCA and MCD definition of Lifetime will be exempt from MCD so that the usual Lifetime KFI can be issued etc. rather than the ESIS.

2. It is foreseeable that products may be designed in the future that will satisfy the definition of FCA Lifetime but fall outside that of the MCD. These products will be covered by the MCD and require an ESIS to be issued rather than a KFI. However, in such circumstances the FCA will expect firms to provide additional information to ensure that clients have received all the information set pout in the Lifetime KFI, albeit in the form of an ESIS and another document.

3. The FCA has decided not to bring its definition in line with MCD based on feedback by providers on the complexity of the UK products.

We have a good six months to go so no doubt it the mud will clear by then!