The Mortgage Credit Directive, which was introduced as of March
2016, has limited the availability of the "HNWI
exemption" for consumer credit agreements. The effect is that
loans which previously fell within the exemption may no longer do
so, and the lender must now be authorised before it can enter into
such loans. We detail below the changes and those loans which will
no longer be exempt.
1. What is the HNWI exemption?
Article 60H(1) of the Financial Services and Markets Act 2000
(Regulated Activities) Order 2001 as amended
("RAO") sets out the exemption for
consumer credit agreements entered into with high net worth
individuals (the "HNWI exemption").
The effect of this exemption is that those consumer credit
agreements to which it applies shall not be a regulated agreement
and as a result the lender (or owner under a consumer high
agreement) does not need to comply with the Consumer Credit Act
In order for the exemption to apply the borrower must declare
that they relinquish the protection and remedies available if the
agreement were to be regulated as a consumer credit agreement, and
obtain a statement of high net worth
signed by the lender (or owner) or an accountant confirming that
the borrower (or hirer) is a natural person who:
earnt, net of national insurance contributions and income tax,
no less than £150,000 during the previous financial year;
throughout that year held net assets of not less than
£500,000, excluding items such as a primary residence and
The above requirements have not changed.
2. Changes to the HNWI Exemption for certain loans
The HNWI exemption was amended when the Mortgage Credit Directive
2014/17/EU ("MCD") was
implemented as of 21 March 2016.
Prior to the implementation of the MCD, the HNWI exemption
applied to credit agreements with individuals, where it was either
secured on land or was for a loan exceeding £60,260. However
the MCD introduced two restrictions to the HNWI exemption, which
means that the HNWI exemption is not available if either:
2.1 the loan exceeds £60,260, the
credit agreement is entered into on or after 21 March 2016, and the
purpose of the loan is either the renovation of residential
property or to acquire or retain property rights in land or an
existing or projected building; and/or
2.2 the credit agreement is entered into on or
after 21 March 2016, the credit agreement is either secured on land
or to acquire or retain property rights in land or an existing or
projected building (i.e. it is of a type described in Article 3(1)
MCD), and the credit agreement is:
(a) not excluded from the scope of the MCD by Article 3(2)
(b) not a bridging loan as defined by Article 4(23) MCD,
(c) not a 'restricted public loan' (as defined in
Article 60HA(3) RAO) for which timely pre-contractual information
on its main features, risks and costs has been provided, and where
any advertising is fair, clear and not misleading.
In broad terms, as of March 2016 the HNWI exemption may no
longer be available in respect of loans for which the purpose is
either the renovation of residential property or to acquire or
retain property rights in land or an existing or projected
building. This is true whether or not the loan is secured by
In addition to new loans, lenders should take note of this
change of law in the context of reviewing their portfolio of
existing loans. Any variations or renewals of an existing loan
would require the new criteria for the HNWI exemption to be
satisfied, so lenders should not automatically assume that a
previously unregulated credit agreement can continue to be afforded
4. How Fieldfisher can help
Our team can advise on whether an application for FCA
authorisation is needed and how this can be done. We can also
consider your existing arrangements and suggest alternative
approaches to ensure the new regime is optimally complied with.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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