Creditors take note. New Regulations apply to property-related lending to consumers.
Where they apply, the Regulations promote responsible borrowing and govern the advertising and marketing of credit products, provision of information to borrowers, ways to assess product suitability and borrower creditworthiness and advice standards. They also affect the regulatory framework for credit intermediaries regarding disclosures, registration, authorisation and supervision.
To fall within the scope of the Regulations, the relevant consumer credit agreement must:
- be secured by a mortgage or by another comparable security on residential property; or
- have as its purpose the acquisition or retention of property rights in land, buildings or proposed buildings.
This means that buy-to-let loans and bridging loans are both in-scope. However, the Regulations do not apply to certain equity release credit agreements or other equivalent specialised products. Nor do they apply to home reversions (which have comparable functions to reverse mortgages), lifetime mortgages which do not involve the provision of credit, or certain niche credit agreements.
While residential mortgages fall primarily within the scope of the Regulations, any consumer credit agreement whose purpose is to acquire or retain property rights in land or in an existing or proposed building is in scope. So the Regulations could potentially apply to unsecured consumer credit agreements for certain home extensions or to unsecured consumer credit agreements for other types of property developments, including those relating to commercial buildings. Creditors will also need to consider whether loans made to a consumer which will be used to assist a third party to acquire or retain property rights will fall within scope. This includes, for example, loans given to parents to assist a child with a property purchase.