Detailed information was provided in Editions 12 and 10 of this SCM Briefing about the key provisions of the EU Directive on Mortgage Credit, and its planned transposition into UK law, via amendments to the Financial Conduct Authority (FCA) Handbook and the introduction of secondary legislation in the form of the UK Mortgage Credit Directive Order 2015 (the "Order", now in revised form). Now that the consultative period for HM Treasury's Consultation Paper on implementing the Directive in the UK has closed, the UK regulators have begun issuing further information about UK implementation in advance of the Directive's 21 March 2016 transposition deadline. As you may be aware, key aspects of the new regime include bringing the regulation of second-charge mortgage lending (such as for debt consolidation or home improvement) into line with first-charge mortgage lending, rather than regulating second-charge mortgages within the UK consumer credit regime as at present, providing new rules for buy-to-let mortgage lending to consumers, amending the definition of "regulated mortgage contract" (to remove the distinction between legal and equitable mortgages), and providing borrowers with additional rights of redress.
One important aspect of the Directive's provisions is that EU Member States do not have to apply the Directive's detailed requirements to consumer buy-to-let mortgage activity, provided an "appropriate framework" for this activity is in place by 21 March 2016 (the date on which the Directive requires transposition). In the UK, the vast majority of buy-to-let mortgage lending to consumers is unregulated (since, for mortgages to be regulated in the UK, at least 40% of the property must be occupied, or is intended to be occupied, by the mortgage borrower or a relative). However, the revised Order requires firms acting as lender, administrator, intermediary, arranger, or carrying out advisory services in relation to consumer buy-to-let mortgages, to be registered by the FCA (and subject to its rules). The revised draft of the Order sets out the new legislative framework for buy-to-let lending, and the FCA's Consultation Paper 15/3 (CP 15/3) consults on how to implement that framework through the FCA Handbook. The FCA's rules will focus on its power to register, supervise and enforce the regime against mortgage lenders, and establish a set of conduct standards that will apply to lenders conducting broking or lending activity with a buy-to-let consumer. CP 15/3 explains how the FCA's registration process will work (including for lenders already authorised or holding an existing FCA permission), the anticipated level of fees (which will be further consulted on separately at a later date), the collection of aggregate data from buy-to-let mortgage lenders, the FCA's proposals for the role of the Financial Ombudsman Service in relation to complaints about buy-to-let mortgages, and the proposed enforcement of the regime through statutory notices, financial penalties and suspensions. Comments on CP 15/3 are requested by 16 March 2015, with the FCA planning to issue its Final Rules in a Policy Statement in June 2015.
HM Treasury plans to finalise the UK transposition of the Directive by March 2015 to allow UK lenders sufficient time to adapt to the new regime, and will allow early adoption of the new UK rules from 21 December 2015.
Financial Conduct AuthorityConsultation Paper 15/3