The Mortgage Credit Directive 2015 (Now 21st March 2016 - Ed.)

Just for those of you  who like to keep ahead of things, here is an early piece on the Mortgage Credit Directive, which is currently  in the process of being signed off by the European Parliament, having finally been agreed in final form AND, thanks to the UK representation, without the inclusion of the Buy to Let Market.

The new rules, which will apply to all Member States once made law, shortly  this year will have to be  brought into each country within 2 years .This means that we have April 26^th 2014 for the MMR and probably October/November 2015 (Now 21 March 2016 - Ed.) for the Mortgage Credit Directive (MCD). That’s a lot of change in a short while so lets see what is underneath the hood, so to speak.

The EU have stated that the  focus  of the MCD is to ensure that all consumers purchasing a property or taking out a loan secured by their home are adequately informed about the possible risks and that all institutions engaging in these activities conduct their business in a responsible manner. The proposed Directive covers all loans which allow the consumer to borrow money in order to buy a home as well as certain loans to consumers to renovate a home. It also covers all loans to consumers that are guaranteed by a mortgage or another comparable security.

Let’s stop there a bit.

So, despite the FCA approach to reduce the level of disclosure at the outset and as a whole within the MMR ( on the basis that documented disclosure has not prevented customers from taking mortgages for which they are not suited) the MCD is looking to put something back. Furthermore, the European Standardised Information Sheet, (ESIS) will at some point replace our current KFI. Also , from the comments above, we can see that second charges will come under the remit of this law as will any loan guaranteed by a mortgage or other comparable security.

OK so what’s in the Directive? (I have  lifted some of this directly from the EU Press Release – the text in italics.)

The proposed Directive will require the European Member States to :

• ·      introduce certain requirements for the advertising of mortgage credit, for example wording that may create false expectations for a consumer regarding the availability or the cost of a credit will be prohibited – so we are probably well up the curve on that one but only time and the proposals of the FCA as set out in their Consultation Paper will tell.

• ·        ensure that all institutions involved in the origination and distribution of mortgage credit to consumers are adequately regulated and supervised – yes I think we have done that one to death in this country and once Consumer Credit is under the FCA, then that is surely pretty much job done.

• ·     establish principles for the authorisation and registration of credit intermediaries (companies who provide information and assistance to consumers looking for a mortgage credit and sometimes conclude mortgage agreements on behalf of the lender) and for the establishment of a passport regime for those intermediaries. This means that once authorised in one Member State, the intermediary would be allowed to provide its services throughout the Internal Market. Well we have had something in place since the dear old MCRI/MCCB days. I suppose there is always a risk that goal posts might change on qualifications or capital adequacy but only a closer reading of the MCD and the FCa proposals will tell. The good news is that you will now be able to operate in other Member States by the sound of it.

• ·        ensure that lenders benefit from provisions enabling them to access information in credit databases on a non-discriminatory basis. I have to say that I don’t actually understand this one right now so I’ll have to do a bit more reading.

Lenders and credit intermediaries will be required to:

• ·        make general information available at all times on the range of credit products they offer; This has an ominous ring to it. After all the MMR has taken a reasonable and rational approach to disclosure but what does it mean at all times. This warrants closer scrutiny and may offer some additional requirements for in process disclosure / repetition and so on.

• ·        provide personalised information to the consumer through a European Standardised Information Sheet or so called "ESIS". This will allow consumers to compare mortgage conditions from different providers; Standardisation is good of course but we have resisted ESIS for many years now and offered up the Key Facts Illustration. If the intention is to allow competition across borders then a more specific standard document will surely be  required otherwise the thing is meaningless. I have seen reference ( I think on the FCA site) to the opportunity to keep the KFI for a further 5 years after MCD implementation but I have not read detail of this and so treat it with caution at this point in time.

• ·        give explanations and meet certain standards for the provision of advice; More reading needed here just in case we have  enhanced education requirements

• ·        assess the consumer's ability to repay, based on information provided by the borrower; OK this is cute. Does that mean that although the MMR leaves the responsibility squarely with the lender that there is going to be a shift back also towards the broker?Well if it is the case that is hardly surprising and would only reinforce that which consumers should know is available under negligence laws and a duty of care.

• ·        finally, credit intermediaries will be required to disclose certain information concerning for example, their identity, status and relationship with the creditor, to render transparent any potential conflicts of interest. Well that sounds reasonable and we probably have that covered , at least for residential mortgages at present although I couldn’t speak for Second Charges Market at the present time.

I think that is enough to be getting on with but one final thought. If the MCD has to be  implemented by say October 2015 and the FCA will have to undergo consultation as a part of its process ( which it will) and given the time that it has taken to implement MMR, then we surely are going to have  our work cut out to get the MCD changes in place in time. I suggest that it is going to be a bit of a roller-coaster ride into 2016.