The Financial Conduct Authority (FCA) has published plans to bring second charge mortgages under FCA mortgage rules and laid out how it intends to implement the mortgage credit directive.

The FCA has proposed that from the 21st March 2016 the regulation of second charge mortgages should move from the FCA’s consumer credit regime and instead will be governed by mortgage rules.  Under the proposals, second charge firms would be required to comply with FCA mortgage rules in areas such as affordable lending, advice, and dealing with payment difficulties.

The full consultation paper can be found here.

Christopher Woolard, FCA director of policy, risk and research, said: “We recognise that second charge mortgages are beneficial for some customers but we are concerned that consumers can be put at risk by poor sales practices and ineffective affordability assessments.  Given the risk of consumer detriment, we want to embed good practice and we believe that applying our mortgage rules is the best way to do this.”

The FCA plan to bring second charge mortgages into the existing mortgage rules from March 2016.  The consultation paper also outlines the authorisation process for these firms and sets out the proposed data reporting requirements for second charge firms.

In the same consultation the FCA has also laid out how it plans to implement the Mortgage Credit Directive.  This will be achieved largely through reliance on existing mortgage rules.  But two areas, product disclosure and annual percentage rate of change, require full harmonisation with the new European rules.

A number of other changes will also be implemented including new knowledge and competency requirements, obligations for firms dealing in foreign currency mortgages and new levels of professional indemnity insurance.