FSA holds firm to its commitment to regulate second charge mortgages

Updated January 2011

The Treasury has announced today, 26th January 2011, that second charge residential mortgage lending will transfer from the Office of Fair Trading (OFT) to the Financial Services Authority (FSA). The FSA will have responsibility for both new and existing second charge mortgage lending.

Announcing the move, Mark Hoban (Financial Secretary to the Treasury) said:

“The Government believes that this package of measures will enhance protection for consumers in the mortgage market. Giving the FSA responsibility for the whole residential mortgage market will simplify the mortgage regulation landscape for consumers and lenders. This will ensure that existing second charge mortgage borrowers who fall into arrears or face repossession on both first and second charge mortgages benefit from being regulated by a single organisation, maximising consumer protection and ensuring a more coordinated approach between lenders."

The Government expects the FSA to begin work immediately on implementing these measures and the statutory instruments transferring responsibility will be published later in 2011.

The Treasury also announced:

• new measures to ensure consumer protections are maintained when a mortgage book is sold by a mortgage lender to an unregulated firm; and
• extending the current regulation of the sale and rent back market to all providers, to ensure appropriate protection for consumers.

The Turner Review (see related links) suggested that the FSA's remit be extended to second charge mortgages and buy to let mortgages and this has been a theme throughout the FSA's Mortgage Market Review. Currently the FSA appears to have back-tracked against a desire to regulate buy to let mortgages, focussing instead on the risk to consumers of securing debts against their homes.

These changes will affect second charge mortgage lenders, including banks, specialist lenders and developers' mortgages and are expected to be implemented in 2012. For further information or to help you prepare for these changes please contact Suzanne MacDonald.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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