Few people can believe it, but the advice and running of a residential mortgage was unregulated 15 years ago. In 2004 they became regulated, the FCA provides rules and guidance on how these are sold and run. MCOBs rule the waves but not for every mortgage.
Mortgages sold to individuals are regulated as are loans to finance a property where more than 40% of the property is being used as the main dwelling. You may hear the word MCD – Mortgage Credit Directive – which came In during 2016 and tightened up the rules of mortgage lending and admin. Most mortgages today are effectively MCD regulated because they adhere to these new rules.
MCD was renowned for bringing second charge loans into regulation. These are loans secured on property where the owner already has a first mortgage on it. They are generally more expensive but readily available compared to first loans.
Loans not in the team are “buy to lets” unless they are being granted to a consumer who didn’t want to let the property, but have to because of the situation. These are known as consumer buy to lets. Professional Landlords who take our buy to let mortgages are not regulated, the definitions are strict but usually stipulate 4 or more houses to be owned or a landlord that wants to become a full-time landlord, not someone who just stumbled across a buy to let need.
Corporate loans are excluded and well outside the CeMAP syllabus.
Lifetime mortgages are in the club of regulated loans, and rightly so. Thes loans occupy the later life lending market and include home reversion plans which are not loans at all but regulated as such. Separate MCOB rules must be adhered to for lifetime mortgages and home reversion plans. Smart regulations to protect the consumer, and keep them in their home until death or moving into a care home.
The newest member of the later life market is RIOs – retirement interest-only mortgages – these are regulated but are sold by standard mortgage advisers – you need special permission and exams to advise in the later life market. RIOs are interest-only mortgages with no end date – they are repaid on death.
Home purchase plans, also known as Islamic Finance, are also regulated. To appreciate these products, an understanding of Sharia or Islamic Law is needed. Thou shall not receive or pay interest is the mantra, and a traditional mortgage falls foul of this since interest is both paid and received by the bank.
Islamic loans involve the bank buying the property and then “leasing” it back to the owner by 25 years or so of instalments. Of course, it achieves the same aim but doesn’t involve interest.