Mortgage Regulation Flashcards
Legal Charge
Gives lender legal rights over the property until debt is paid
First Charge Mortgage
Registered land
- Legal charge is registered at the land registry on the charges register
Unregistered land
- Lender holds the title deeds as security and will be considered the first legal charge holder
Second Charge Mortgage
Registered Land
- Additional borrowing to a different lender
- Charges are repaid in date of registration at land registry
- Only offered if there is sufficient equity left in property
- Higher rates as they are more risky
Unregistered Land
- Subsequent charges recorded in land charges register in order of priority
Regulation Timeline
2001
- FSA became universal regulator following FSMA
- FSMA consolidated all previous acts for easier supervision
2004
- FSA took over Mortgage regulation
- Any mortgage after this time is regulated
- MCOB launched
(previously only small areas were covered in Consumer Credit Act & code laid out by CML - Council of mortgage lenders who had no statutory powers.)
2007
FCA now covers
- Mortgages
- Equity Release
- Home Reversion
- Lifetime mortgage plans
- Home purchase plans (Islamic Mortgages)
2014
FCA took over Consumer Credit from OFT - included second charge mortgages
2016
MCD
- Second Charges
- Some Bridging Loans
- CBTL
European Credit Directive - MCD - 2016
- Platform for cross border EU mortgage market
Newly regulated - CBLT - only regulated if after 2016
- Second charges - even taken before 2016
- Some bridging loans
MCD regulated if:
- Mortgage taken after 31st Oct 2004
- Residential property (not commercial)
+ Lifetime mortgages
+ Home purchase plan (Islamic)
+ Regulated Sale and Leaseback
- Loans taken personally or as a trustee/partnership
+ NOT LTD or LLP
- Property must be EEA
- Legal Charge Mortgage (Secured loan)
- Borrower or family occupy at least 40% of property
Mortgage taken after 2016
- MCOB regulated mortgage exempt from CCA legislation
- Includes
+ CBTL
+ Bridging Loans
+ 2nd Charge Mortgages
- All lenders must be authorised
Lifetime Mortgages - Regulated but not MCD
- For individuals over a certain age
- Is an interest only mortgage
- Can pay back interest but most allow the roll up of interest
- You get more the older you are
- No repayment vehicle, the property is used to pay off the loan & Interest
- Interest is charged at a fixed rate
- Individual uses the cash to buy an annuity for income
- Some offer a drawdown facility with pre agreed limits
- Borrower remains the homeowner
- Any equity leftover at death is passed on to family
These are MCD Exempt as they are regulated as a separate type of mortgage
Home Reversion Scheme - Regulated
Owner sells a stake of their home to the lender and enters a lifetime lease.
- Borrower no longer owns the property
- Borrower pays token rent and becomes tenants
- They don’t get the full value as the lender takes into account the interest that might have been paid
- They get slightly more than a lifetime mortgage
- Reversion company owns the property
- Regulated under MCOB
- Advisors need a different qualification
- Reversion company seeks repayment on death or rehoming of both clients
Ijara Mortgage - Home Purchase Plans - Regulated by FCA & MCOB
- Lease to own
- Bank buys the property selected by the client under a promise to purchase agreement
- Client makes payments (usually 25yr term)
- Client pays capital, no interest and rent
- Rent is fixed for 12 months
- At the end the lender transfers the home to the borrower once all the payments have been made
- Stamp duty is only paid once, at the beginning
Murabaha Mortgage - Home Purchase Plan - Regulated FCA & MCOB
- Less popular than Ijara & more inflexible for early repayment
- Bank buys the property and sells it back at a higher price
- Property is registered to the clients name from the start
- The price charged depends on the term which is up to 15 years
- Initial payment is 20%
- The client makes monthly payments
- Stamp duty is paid once at the start
Retirement Interest only mortgage
- FCA introduced in 2018
- Needed to help people with interest only mortgages before MMR was introduced
- For people who couldn’t repay their interest only mortgage or to release equity without interest roll-up
- Similar to an interest only mortgage but no fixed term or repayment vehicle
- Debt doesn’t increase
- Affordability is calculated on interest payment in retirement
- Repaid on death or moving
- THIS IS NOT AN EQUITY RELEASE PROGRAM
CBTL Mortgages
Lenders and Advisors subject to FCA & MCOB rules
- Purchased property not wholly or predominantly for business purposes
- Mortgages are classified as accidental landlords
Applies to
+ Inherited property
+ An existing property that needs to be let before it sells
+ Purchased to be let to a relative - 40% rule
+ Lender has more strict affordability & suitability rules
- Covered by FOS & FSCS
BTL - Unregulated Mortgages
- Bought with the intention to let
- Borrower must sign a declaration that they are not protected under FOS or FSCS
- Borrower must not have lived in the property
- Borrower must have a portfolio of properties
- Must only be using it as a business
- Lender can voluntarily join FOS scheme
Second mortgages - FCA & MCOB regulated since 2016
- Advisors must be level 3 qualified
- FCA took over consumer credit legislation in 2014 from OFT
- Consumer credit legislation includes unsecured lending like CC and overdrafts but also 2nd charge mortgages
