The warning formed part of the CML’s response to the Financial Conduct Authority’s (FCA) consultation on the directive which must be enshrined in UK law by 21 March 2016.
The CML said it feared that lenders would begin to ‘manage’ lending towards the end of 2015 to minimise disruption caused by existing applicants having to comply with a new regime.
Currently the MCD states that all cases which will not have completed before 21 March would have to be reassessed against MCD rules.
The rules enforce a seven-day offer reflection period and the issuance of disclosure documents in a different format.
There is currently no guidance on how lenders should deal with applications in their pipeline which have not completed before the deadline.
In its statement the CML said: “Firms issue mortgage offers that are typically valid for up to 12 months and so more than 250,000 cases could be caught, affecting perhaps up to 500,000 individuals. This figure is especially high because March is a peak period for UK mortgage activity.”
The CML said the disruption would be magnified by the number of property chains which could be affected by those who decide to halt the process by taking advantage of the reflection period even though others in the chain have waived it.
The solution, according to the trade body, is to allow mortgages which have been applied for but which have not completed before 21 March 2016 to be exempt from the MCD rules. It argued that this was the MCD’s intention when it included article 43 (1) which said: “[the MCD] shall not apply to credit agreements existing before 21 March 2016.”
The CML said an alternative option would be to allow lenders to comply with the MCD earlier than 21 March 2016 which would give borrowers more time to move through the mortgage process and complete before the deadline.
But the trade body was concerned that lenders will already be working to a tight schedule getting software systems up and running in time so moving the date forward may not be feasible.
“We recommend that the FCA should ensure firms have a range of options to mitigate the impact of the lack of a pipeline arrangement in the MCD. We will continue working with the FCA and HM Treasury to help mitigate the impact of the MCD,” said the CML.
The consultation closed on 29 December 2014.
