PERG 4.10A 1Activities within scope of the Mortgage Credit Directive

General treatment for activities within scope of the Mortgage Credit Directive

PERG 4.10A.1 G 01/01/2021 RP

Article 4(4B) of the Regulated Activities Order says that certain exclusions in the Regulated Activities Order do not apply in certain cases; briefly, those are cases which were covered by the MCD as it applied to the United Kingdom before IP completion day4, and the effect of the legislation which refers to those cases has been preserved. This section explains the situations in which this applies. References in this section to agreements or activities covered by, regulated under or within the scope of the MCD should be read as including reference to agreements or activities which would be within such scope if secured on residential land in an EEA State, or carried out in an EEA State or in relation to a customer in an EEA State.3

PERG 4.10A.2 G 21/03/2016 RP
  1. (1) a person is:
    1. (a) a mortgage creditor (see PERG 4.10A.6 G ); or
    2. (b) a credit intermediary (see PERG 4.10A.12 G ); or
    3. (c) a person providing advisory services (see PERG 4.10A.20 G );
    1. (a) article 25A (arranging (bringing about) regulated mortgage contracts and making arrangements with a view to regulated mortgage contracts);
    2. (b) article 53A (advising on regulated mortgage contracts); or
    3. (c) article 61(1) ( entering into a regulated mortgage contract as lender ); and
    1. (a) article 29 (Arranging deals with or through authorised persons);
    2. (b) article 66 (Trustees, nominees and personal representatives); or
    3. (c) article 67 (Activities carried on in the course of a profession or non-investment business);

    then the result is that:

    1. (4) the exclusions in (3) are switched off; and
    2. (5) that person is treated as carrying on the regulated activity in (2) in question.
    PERG 4.10A.2A G 25/11/2022

    5Some credit agreements fall outside of the mortgages perimeter but are nevertheless covered by MCD. Specifically, the scope of MCD includes credit agreements with consumers that are not secured on residential land where their purpose is to acquire or retain property rights in land or in an existing or projected building.

    As a result of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2022, article 4(4B) of the Regulated Activities Order does not apply in respect of these credit agreements when entered into with high net worth borrowers on or after 21 July 2022. Such agreements can therefore now be exempt from the consumer credit lending activity if certain conditions (set out in article 60H of the Regulated Activities Order) are met (see PERG 2.7.19J ) (High net worth exception). It should be noted that this exemption does not apply to regulated mortgage contracts as there is no general ‘high net worth’ exemption to the mortgages perimeter.

    The meaning of mortgage intermediary

    PERG 4.10A.3 G 21/03/2016 RP

    The Regulated Activities Order refers to credit intermediaries ( PERG 4.10A.2G (1)(b) ) and providers of advisory services ( PERG 4.10A.2G (1)(c) ) as mortgage intermediaries.

    What mortgages are covered by the Mortgage Credit Directive?: General

    PERG 4.10A.4 G 21/03/2016 RP
    1. (1) the lender is acting in the course of his trade, business or profession; and
    2. (2) the borrower is an individual; and
    3. (3) the borrower is acting for purposes which are outside their trade, business or profession; and
    4. (4) the regulated mortgage contract does not come within one of the exclusions summarised in PERG 4.10A.5 G .
    PERG 4.10A.5 G 21/03/2016 RP
    1. (1) This paragraph lists the regulated mortgage contracts outside the MCD.
    2. (2) MCD exempt lifetime mortgages are excluded from the Mortgage Credit Directive. These are regulated mortgage contracts or article 3(1)(b) credit agreements where the creditor:
      1. (a) contributes a lump sum, periodic payments or other forms of credit disbursement;
      2. (b) contributes the sums in (a) in return for a sum deriving from the future sale of a residential property or a right relating to residential property; and
      3. (c) will not seek repayment of the capital until the occurrence of one or more specified life events of the consumer.

      However, notwithstanding (c), the creditor may seek early repayment if the consumer breaches his contractual obligations and the breach allows the creditor to terminate the credit agreement.

      Only lifetime mortgages that do not meet these conditions fall within the Mortgage Credit Directive. Normally, these will be mortgages where partial repayment of the capital is, or may become, due. These are known as MCD lifetime mortgages.

      1. (a) the credit is granted by an employer to his employees;
      2. (b) the employer does so as a secondary activity; and
      3. (c) such a credit agreement is offered:
        1. (i) free of interest; or
        2. (ii) at an APRC lower than those prevailing on the market and not offered to the public generally;

        are excluded from the MCD.

        What mortgages are covered by the Mortgage Credit Directive?: Borrower as consumer

        What effect does article 4(4B) have on lenders?

        PERG 4.10A.6 G 21/03/2016 RP

        To work out the effect of article 4(4B) of the Regulated Activities Order (see PERG 4.10A.2 G ) on the regulated activity of entering into a regulated mortgage contract as lender , it is necessary to look at what a mortgage creditor means.

        PERG 4.10A.7 G 21/03/2016 RP

        In relation to a regulated mortgage contract, mortgage creditor means a person who grants or promises to grant credit falling within the scope of the definition of a regulated mortgage contract in the course of its trade, business or profession.

        PERG 4.10A.8 G 21/03/2016 RP

        Therefore, article 4(4B) means that the Regulated Activities Order exclusions in PERG 4.10A.2G (3) do not apply to entering into a regulated mortgage contract as lender unless:

        1. (1) the regulated mortgage contract falls outside the MCD (see PERG 4.10A.5 G ); or
        2. (2) the lender is not acting in the course of his trade, business or profession.