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From 21 March 2016 second and subsequent charge mortgage contracts will fall under the definition of a regulated mortgage contract. This change is part of the United Kingdom’s implementation of the Mortgage Credit Directive (MCD), which applies equally to first and subsequent charge mortgages.
The PRA’s rules, which implement a Financial Policy Committee (FPC) recommendation, place a loan to income (LTI) flow limit on regulated mortgage contracts. Hence, the implementation of the MCD means that the LTI flow limit would automatically apply to second and subsequent charge mortgage contracts, which are currently exempted from the LTI flow limit.
This consultation paper proposes to amend the PRA’s rules to maintain the PRA’s current policy of excluding such second and subsequent charge mortgage contacts from the LTI limit, with the intention to consult subsequently on including these loans in the LTI flow limit when loan level data becomes available in the course of 2017. The PRA will continue to work together with the Financial Conduct Authority to keep the size of the second and subsequent charge mortgage market under review.
In addition, the FPC has stated its intention to keep its recommendation under review.
The consultation period closes on Friday 11 March 2016.