Topic 3 - Mortgage Regulation Flashcards
Regulations for regulated mortgages, including lifetime, second-charge, CBTL, bridging loans and home reversion plans are found in…
…the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB), which forms part of the FCA Handbook.
The Mortgage Credit Directive (MCD)…
…is designed to set minimum regulatory requirements in member states for credit agreements relating to residential property. Implemented in March 2016
MCOB already covered most of its requirements. New MCD sections were added where new rules were required for buy-to-let mortgages and second charges.
MCD also introduced the CBTL.
What is a mortgage entered into after 21 March 2016?
A MCD regulated mortgage.
It includes remortgaged as these are a new contract.
Any change to the mortgage that isn’t a new contract will still be MCOB rules
Which types of mortgage are MCD exempt?
Lifetime mortgages and business BTL.
Home purchase plans -
Involve the provider buying the property and then selling it to the ultimate owner via a special agremeent, either through the regular payments or capital. Or capital payments and rent.
(islamic)
Consumer Protection (Amendment) Regulations 2014 have 3 main parts:
- General ban on unfair commercial practices
- Misleading and aggressive practices are assessed to determine their influence on the average consumers’ decisions
- There is a blacklist of practices banned as they’re deemed to be unfair
Example is estate agent giving misleading information about a property they are selling.
What is a mortgage
A mortgage is an arrangement where an asset is used as a security . The loan is secured on property as a legal charge.
What’s is a legal charge
A legal charge gives a lender certain rights over a property. Such as repossession.
What is a back book loan in terms of the MCD
In general a new regulation covers only arrangement entered into on or after the implementation date.
However second charge mortgages entered into before 21st March 2016 are subject to MCOB as back book loans I’d they meet certain criteria.
What is a regulated mortgage
FCA regulated the sale and and administration of mortgages that meet the definition of a regulated mortgage.
A regulated mortgage contract meets the following conditions:
A lender provides credit roan individual or to trustees (the borrower)
The borrowers obligation is to repay is secured by a mortgage on land in the EU, where at least 40% of the land is used or is intended to be us, as or in connection with a dwelling.
What do mortgages before 21st March 2016 fall under?
MCOB
What is a lifetime mortgage
Homeowners over a certain age release some equity in their property. The lender agrees to advance a percentage of a property on a first charge basis, when the borrower, moves , goes into residential care or does the lender can exercise its legal right to take possession
On a lifetime mortgage although full capital is not required until the mortgage ends during the term the arrangement can include the following:
No capital repayments and interest is added to the capital to be repaid when the mortgage ends (rolled up) Most common type.
Less common:
No capital payments are required but interest payments must be made
Some capital repayment and interest payments are required but no requirement for full repayment until the end of the mortgage
What is a retirement interest only mortgage:
Due to difficulty Of borrowers repaying and interest only mortgage at the end of the term. Lenders are permitted to arrange mortgages on an interest only basis for borrowers over a certain age. Affordability can be assessed on an interest only basis.
