In this brief guide, we are going to discuss what a regulated mortgage contract is and give examples of when a mortgage contract may not be regulated.
What is a regulated mortgage contract?
A regulated mortgage contract is defined as below in the FCA handbook. To put it in layman terms, aA regulated contract is one which credit is secured on a mortgage where over 40% of the land is to be used as a dwelling.
“ (1) the contract is one where a lender provides credit to an individual or trustees (the ‘borrower’);
- (2) the contract provides for the obligation of the borrower to repay to be secured by a mortgage on land in the EEA; and
- (3) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling.
This section sets out the FCA’s understanding of some key concepts contained in article 61(3)(a). It should be noted that, where a contract meets the necessary requirements for both a regulated mortgage contract and a home purchase plan, it will be treated as a home purchase plan only and will not be a regulated mortgage contract. Guidance on the meaning of a home purchase plan is in PERG 14.4 (Guidance on home reversion and home purchase activities).
A contract is not a regulated mortgage contract if it is:
- (1) a loan to a commercial borrower excluded under PERG 4.4.17 G or PERG 4.4.21 G; or
- (2) a second charge loan by a credit union excluded under PERG 4.4.24 G; or
- (3) a second charge bridging loan excluded under PERG 4.4.27 G;
- (4) a CBTL credit agreement excluded as described in PERG 4.4.31G.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
FAQs: Regulated mortgage contract
What is the difference between a regulated and non-regulated mortgage?
A regulated mortgage is one which is regulated by the FCA, the mo0rtgage lender must follow certain rules and guidelines given in the FCA handbook.
A non-regulated mortgage does not have any FCA protection.
Are let to buy mortgages regulated?
A let to buy mortgage is not a regulated mortgage and hence you are not protected by any strict guidelines defined in the FCA handbook for regulated mortgage contracts.
Is a second charge a regulated mortgage contract?
A second charge mortgage could be a regulated mortgage if it meets the exemptions listed in the FCA handbook. Second charge mortgages are still protected by the consumer credit act.
Are business buy to let mortgages regulated by the FCA?
Buy to let mortgages are not regulated by the FCA but if the mortgage contract is classed as a consumer buy to let then it may be regulated under the FCA regime.
In this brief guide, we discussed what a regulated mortgage contract is and gave examples of when a mortgage contract may not be regulated.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.