A Point to Note: How the Mortgage Credit Directive affects the High Net Worth Borrower Exemption for Consumer Credit
A “regulated credit agreement” is, in simple terms, a loan made to an individual (which includes partnerships of two or three persons, not all of whom are bodies corporate, or unincorporated bodies which do not consist entirely of bodies corporate and are not partnerships) which is not secured on residential land. If a lender enters into regulated credit agreements in the UK, this may constitute a regulated activity which requires authorisation from the Financial Conduct Authority (FCA).
There is an exemption for loans made to high net worth individuals (the HNWI Exemption) where the amount of credit is more than £60,620 and the loan is made to a “certified high net worth borrower”. This is a person who in the previous financial year had an annual income in excess of £150,000 or net invested assets of more than £500,000. There must also be a “Statement of High Net Worth” prepared in relation to the high net worth borrower and the loan agreement must contain a prescribed declaration which is signed by them. Where a lender is able to make use of the HNWI Exemption, FCA authorisation is not required to enter into a “regulated credit agreement”.
The Mortgage Credit Directive (Directive 2014/17/EU) (the MCD) came into effect on 21 March 2016. One of the consequences of the MCD is that it has effectively removed the HNWI Exemption where a lender enters into a regulated credit agreement where they know or have reason to expect that the purpose of the loan is to acquire or retain property rights in land or a projected building.
Lenders providing regulated credit agreements in the UK without FCA authorisation (for example, offshore lenders) should be aware of the change introduced by the MCD and amend their procedures to reflect that the HNWI Exemption may not be available where the borrower intends to acquire rights in land or a building.
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