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MMR: Partial opt-out for business borrowers

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The FSA will adopt an alternative approach for loans where a mortgage, remortgage or further advance is solely for a business purpose.

In its last consultation paper, the FSA proposed reading across the majority of the Mortgage Market Review proposals to regulated mortgage contracts for a business purpose, with some changes surrounding interest roll-up mortgages and professional standards.

In its final rules, published today, the FSA says it recognises the full package of MMR proposals is not workable for business lending, with business borrowers having higher levels of financial capability than consumers in general.

As a result loans for a business purpose in the following categories can be taken out on an execution-only basis. The FSA will also allow the loan to be repaid from the resources of a business or the personal resources of a borrower if funds are being raised for a new business venture.

  • Raising a loan solely for a business purpose on a customer’s previously unencumbered home
  • Taking a further advance for a business purpose
  • Remortgaging for a business purpose.

Remortgaging or taking out a further advance for debt consolidation and a business purpose will not qualify for the alternative approach.

But to prevent gaming of the new rules it requires a lender or adviser to have sight of a “credible business plan” before determining whether the loan is solely for a business purpose. The FSA’s interest-only rules will also continue to apply.

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