Mortgage Credit Directive - The Proposals for Disclosure (KFIs)

This blog looks at the KFI verses the ESIS and the proposed changes that may come in from 2016 until 2019 when the ESIS must be put in place by member states.  It also looks at some of the changes affecting lenders offers.

The Mortgage Credit Directive (MCD) requires firms to move to the European Single Information Sheet (ESIS) by 21st March 2019  where there is an equivalent national disclosure document in place. The KFI goes a long way to achieving this but additional disclosures will be  required covering :-

• information on the new seven day right of reflection period the MCD introduces

•  where applicable, extra information for foreign currency loans, including an illustration of the impact of a 20% change in the exchange rate and new rights introduced for foreign currency borrowers because of the MCD 

• information for consumers on the potential impact of interest rate changes, describing both the APRC and monthly payments should interest rates rise to the highest level seen in the past 20 years

I will not discuss these specific points in this particular blog although the last point will make some interesting discussion in relation  to affordability and the impact of potentially show stopping rates.

The FCA is proposing, in relation to the KFI, that these additional three bits of information can be provided at the same time as the KFI but on a separate document expressed in terms that are similar to the ESIS requirements from 21st March 2016 until 21st March 2019 for first charge mortgages. However, the same will not apply to second charges as there is no comparable disclosure in place and so the ESIS will apply to Second Charge loans from 2016 under the current proposals.

The ESIS is in prescribed form with little option other than to add certain additional information.

The FCA  is proposing to keep the current triggers (before an application is made) for the issue of the ESIS ( or its equivalent until 2019) even though the MCD requirement allows for disclosure at the time of offer at the latest.

On 21st March 2016 the  MCD implements a binding offer that is not conditional, supported by an ESIS. Under the MCD lenders will not be  able to issue a final offer that is conditional upon certain factors. This is a variation on UK lenders approaches. At this point in time I am unsure what that might mean for undertakings  and retentions or indeed self-build mortgages.

The FCA comments as follows:-

The MCD focus on there being a binding offer supported by an ESIS will mean firms need to review their approach to loans made available in stages (typical examples being self-build mortgages or mortgages with retentions). One possibility might be to make a binding offer for the full anticipated amount. The alternative would be to treat each tranche as replacing the previous loan, requiring a new ESIS each time. We have added guidance (see MCOB 6A 3.7G) to explain how a firm might approach the new requirement. 

Finally, for today's blog, there will be  a cooling off period introduced with effect from 2016 .  The MCD does not cover how the notice should be  given  but lenders will need to ensure that they can evidence this. There are two options available and the  FCA proposes the following:-

The binding offer is also the starting point for a new requirement for consumers to have time to reflect on the offer. This period has to be of at least seven days from the making of the binding offer and can either be a reflection period before entering the contract or a right of withdrawal after the contract. Member states have to choose one of these two options. We propose to require a compulsory pre-sale seven day period of reflection as this will be much less disruptive for property sales. In line with the directive, our draft rules also set out that the consumer can accept the offer at any point during this reflection period.