Strong support for first and second consolidation

In its latest consultation the Treasury found that there was widespread support amongst respondents for the decision to bring second charge mortgages into the same regime as first charge mortgages.

The Treasury said: “It was seen as a logical move as well as dealing with the MCD requirement to treat first and second charge mortgages in the same way for regulatory purposes.”

However a number of respondents raised concerns about how such an amalgamation would be managed.

The Treasury continued: “A number of respondents highlighted that while the first and second charge markets did share many characteristics that made their regulation under a single regime appropriate, there were also a number of differences that spoke in favour of an approach that was tailored.”

Feedback from builders, in particular, highlighted that the additional requirements of the MCOB regime did not fit well with their use of second charge lending, which was in the context of shared equity products that tended to be offered only at certain times in the market cycle and represented only a small part of their wider business.

A number of responses also touched on the limited Consumer Credit Act (CCA) protections that are being preserved for the back book of second charge loans that will be transferred to the mortgages regime.

The Treasury said: “Second charge lenders and their representatives argued that the preservation of these protections drove complexity and cost, and that the mortgage regime provided adequate protections to replace those lost with the removal of consumer credit protections.”

Consumer groups, on the other hand, welcomed the preservation of these protections, and were keen for these to be extended to loans originated under the new regime, rather than just restricted to the back book.