Analysis
Key Regulation Analysis
By AMBER PRITCHARD
Last month saw the implementation of the Mortgage Credit Directive( MCD) rules from the Financial Conduct Authority( FCA) so that second charge mortgage regulation has moved from the consumer credit regime to the mortgage regime. The EU-wide framework of conduct rules for mortgage firms comes less than two years after the UK’ s Mortgage Market Review( MMR). Now lenders, administrators and brokers must be authorised to carry out these deals and hold the correct permissions. The FCA has the power to register and supervise firms carrying out consumer buy-to-let activity as defined in the government’ s legislative framework. The MCD is largely based on the FCA’ S existing mortgage rules, but there are some new requirements which are designed to foster a single market for mortgages and to help protect consumers. It says,“ Firms will be required to provide an adequate explanation of a product’ s essential feature, issue a binding offer, provide a seven day reflection period, and give customers a European Standardised Information Sheet disclosure document.” These rules are tailored to the risks that occur with secured lending, the vast majority of sales require advice with lenders expected to carry out detailed affordability assessments. Regulated mortgage contracts must conform to provisions kept by the Consumer Credit Act( CCA). Loan payments must have the option to be completed or paid ahead of time, have the right to a rebate on early settlements and prohibitions in place to refrain interest rates automatically increasing. Those of you already in the business of selling second charge mortgages must gain level 3 qualifications from The Certificate in
Mortgage Advice and Practice( CeMAP) prior to September 2018 whereas, new sellers will have 30 months to complete the training *. It’ s been nearly nine years since the financial crisis and transparency within the industry is as important now as it was then. With the new regulations in place the buy-to-let arena, which has been thriving in recent years, is facing the biggest impact. The MCD will have the most effect on“ accidental landlords” – people who have inherited or for other various reasons gained property without the intention of renting it out but, have done so anyway. According to the Council of Mortgage Lenders, a fifth of the 1,630,600 buy-to-let mortgage products in existence at the end of 2014, were accounted for by accidental landlords. Mortgage advisers must now mention the option of a second charge mortgage for customers looking to extend their borrowing. Only two years ago the market rate for these mortgages were marked at fees of 10 % charged by brokers, a necessity under the old Consumer Credit Act regime where customers were not allowed to be charged fees upfront. Over the past 12 months the rate has reduced significantly with the lowest fee at 4.5 % yet the majority within the comfortable zone of 5 % and 6 %. Traditionally an area for master brokers Liz Syms, director of Connect Mortgage Club, said:“ The new regulation will definitely increase awareness and advisers will have to decide whether they include it in their services.
* If you are still in need of authorisation contact the Consumer Credit Centre on 0808 124 0010.
Bridging Watch
By AMBER PRITCHARD
Bridging finance was once considered a last resort for funding, but recent years have proved that those perceptions around it have made it the success it is today. More lenders, whether they be privately owned or not, are entering the sector upgrading the accessibility and sophistication of bridging products. According to data conducted by bridging lender MT Finance, bridging loans hit almost half a billion pounds during 2015 and are set to rise in 2016 as more lenders and brokers look to use the fast form of funding and fill liquidity shortfalls. The figures for 2015’ s final quarter showed a strong demand for these loans, £ 432.5 million worth were completed by its contributors in the entire year of 2015, due to the short term finance market becoming increasingly relied upon by the current economy. A demand for bridging loans appears to be driven by three factors: high consumer confidence, high developer confidence and a significant rise in house prices. Meaning property once again seems like a good bet for professional investors. The property price growth and need for cheap finance have driven a demand for short term loans and in particular bridging. In line with the mortgage and credit markets generally, rates as bridging lenders have fallen dramatically and competition has become fierce. Although the wealth of the market is making recent year or year positive gains, lenders and brokers must not be tempted to use bridging finance as anything other than a short-term solution to funding, with the client’ s best interests at heart. Proposing to regulate this is the Prudential Regulation Authority who aim to introduce tougher affordability tests and therefore build a sustainable market. Chief Executive of the Association of Short-Term Lenders( ASTL), Benson Hersch, touched on the reputation of the bridging industry and said it has improved greatly in the past few years. He added:“ Much business is now done by ethical lenders that operate in a clear and transparent way, which has made bridging a more acceptable and well-known source of funding for brokers and their clients.” Hersch estimates a total figure of completions could reach around £ 4 billion by the end of 2016. His calculations are based on the fact that loans written by ASTL members last year totalled almost £ 2.5 billion. Those members represent only 33 of the industry’ s most reputable lenders, which in total mirrors 60 % of market lenders, therefore £ 4 billion would be a
‘ feasible’ figure. CEO of Hope Capital, Jonathan Sealey, agrees with Hersch’ s belief that the market could reach a staggering total of £ 4 billion in bridging completions by the end of 2016. In regards to the growing sector of the market Sealey said:“ Appetite for bridging is increasing, but this may be due to the impending stamp duty charges and implementation of the Mortgage Credit Directive, rallying borrowers to act before they both come into effect.” He added:“ Each lender has their own unique selling point in terms of price, speed of completion and service. However, increased competition inevitably leads to lower prices so it is likely that some lenders will continue to decrease their prices further.” Finally Sealey said that new lenders looking to join the game will need to bring something different to the table to gain traction in the market.
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