In its final legislation published today, the Treasury said there had been particular concern about pipeline mortgage applications which had been started but not completed before the deadline for implementation on 21 March 2016.
It said this was a ‘significant theme’ in many responses it received in its consultation over the MCD rules from mortgage brokers and lenders.
The original MCD proposal did not make any provisions for pipeline cases which implied any mortgage application which had not been completed by the deadline would have to be reassessed against MCD rules.
In its response to the Treasury’s consultation on the MCD, the Council of Mortgage Lenders (CML) was concerned that lenders would begin to slow business down towards the end of 2015 to help manage the change to the rules. It said this reaction would impact on property sales and the wider economy.
The government has responded to the concerns by allowing firms to adopt the revised rules up to six months ahead of the deadline and honour agreements offered before 21 March 2016 under the old rules.
In its response the Treasury said: “…where credit is granted pursuant to an agreement that exists before the implementation date of 21 March 2016, the affected mortgage does not need to be subject to the MCD.”
Individual firms must decide for themselves when an agreement exists, for example at the decision-in-principle or mortgage offer stages.
Under the EU’s new rules, mortgage customers will be allowed a seven-day cooling-off period to consider the mortgage offer. The illustration issued to the borrower must use the new format of the European Standardised Information Sheet (ESIS) instead of the Key Facts Illustration (KFI) which includes a more detailed Annual Percentage Rate (APR) breakdown.
The Treasury’s overriding feeling of Europe’s desire to unify residential lending across its member states is that it is not necessary. It said consumers already received a ‘high level of protection’ from the Financial Conduct Authority (FCA). It viewed the MCD as an added cost rather than an added benefit.
It said that though the MCD aimed to ‘facilitate a better internal market in mortgage lending across Europe’ it did not help lenders to deal with unfamiliar markets and foreign legal systems therefore falling short of achieving this goal.
The head of mortgage policy at the Building Societies Association (BSA) Paul Broadhead shared this view. He said: “The BSA is still of the view that the Mortgage Credit Directive will offer little or no benefit to UK consumers but will add cost, complexity and some confusion to the mortgage process.
“However, we welcome the government’s approach to implementation putting in place the minimum requirements to meet European law.”
The FCA will publish its final rules on how the MCD will be integrated into the mortgage rule book at the end of quarter one 2015.
