Mortgages and Europe

A little something for the medium range scanners...

There have been mutterings about European Mortgage Legislation for more years than some of us can remember. Certainly there was talk about it back in the days of the Mortgage Code and when  the UK Governement was still thrashing out who would take responsibility for the regulation of mortgages in the UK. Even when the FSA put forward its final Mortgage Conduct of Business rules in 2004 it paid attention to what was then and still is termed the European Single Information Sheet (ESIS). This is why the KFI can be issued with or without the amortisation table at the end of it. The amortisation table was an ESIS requirement.

However, that is not to say that such legislation has gone away becasue it has not.  Now that we have  got the MRR coming in on 26th April 2014, we can also consider the Mortgage Credit Directive (MCD) which is currently, at least as far as it can be gathered, being thrashed out under the auspices of the Irish EU Presidency. It is expected that, if it is going to happen in any realistic timeframe, an agreement on what EU Mortgage legislation should be achieved  by the end of May this year. Normally that would give the member states two years to implement and so we could see possible changes to Mortgage Regulation rules in a little over two years. That would be  mid 201.

So what possible issues are in MCD that could affect the UK mortgage market?

The first one that comes to my mind is that of Buy To Let mortgages. Initially, European concerns about irresponsible lending gavce rise to a focus of the MCD on all sectors of the market and its various niches. More recently in discussions it would appear that the focus may have shifted to more mainstream products and this could possibly exclude BTLs. However, unless something has already been decided this is still on the table and we could see the fact of BTls being brought into regulation and thus under the FCA remit. Much of the industry and possibly even the government is against this but I guess the FCA will not have a problem with it. In favour of it not happening, there is the traditional issue of definition. If BTLs are brought into regulation then unless there is a particularly clever formula proposed, it will also bring in all other commercial loans across a range of business uses. That surely is not going to happen.

The second issue involves the Standard Variable Rate and its use. Arguments put forward within the MCD could, if accepted result in a level of restriction on product design and development that would limit the flexibility of the market to innovate. Now whether this is seen as a good thing or a bad thing - in the light of experience over the past 10 years - the promise of legislation to limit the innovations of entrepreneur has never been a selling point in general elections. Even the FSA shied away from a more intrusive approach to product design and innovation in their review of responsible lending under MMR.

Other areas where the MCD can and will probably exert influence are as follows:

• pre-contractual disclosure of information by lenders and mortgage intermediaries – to be done at several stages, from advertising through to the proposal of a credit agreement
• giving 'adequate explanations' to the consumer;
• assessment of the consumer’s creditworthiness and the suitability of products;
• advised sales standards and the range of products that must feature in the consideration of such advice;
• authorisation and supervision of credit intermediaries, coupled with provisions on professional requirements and ‘passporting’.

However, all these  points are very familiar and don't seem to be a great distance from where we are now and will be  by the time MMR takes effect. Whether the last point will place any extra influence on individual registration remains to be  seen.