The long-awaited Mortgage Credit Directive (MCD), which comes into effect in March 2016, will enforce a new framework of rules for mortgage firms across the EU. Guidelines for the changes were first issued in February 2014, but with these regulations now on the horizon, it is time for brokers and lenders to increase their preparations ahead of this new era of compliance.
The MCD applies to both first and second charge mortgages. These new rules aim to protect and inform consumers who purchase a property, or who take out a loan secured against their home. As the regulatory framework steadily evolves, it will continue to bring second charge mortgages, which have traditionally been overlooked as a lending option, further into the mainstream mortgage market.
However, brokers who fail to prepare for this change, lack knowledge in this area, or have limited products on offer could risk damaging client relationships or losing them to competitors. Come March 2016, consumers will be looking to providers who are prepared to offer regulated advice on what is set to be an increasingly popular loan option.
Traditionally, many brokers have been reluctant to offer secured lending as an alternative to remortgaging products. This could be due to nervousness about the compliance implications or the absence of broker education in this area. However, now that all forms of secured lending will fall under the Financial Conduct Authority’s umbrella, brokers will have to disclose that second charge mortgages might be a more suitable option alongside other products. With this approach, advisers will be able to attract customers looking for more flexible options for further borrowing and, by offering new products, will have the ability to provide better outcomes for both new and existing customers.
Lenders also have a duty to treat customers fairly, and therefore must be sure that brokers have the appropriate level of knowledge and competence to offer their clients the best possible options. Alongside adequate training, qualifications and experience, lenders and brokers must therefore maintain a customer-centric focus as well. To achieve this goal, brokers will need to consider all the options available and find a loan that is most suitable to the consumer’s individual circumstances, which in many cases might well be a secured loan.
With the MCD now clearly on the horizon, brokers will need to redevelop their strategies to ensure that the new rules are considered. The right technology, supported by staff training, will help brokers to implement these changes and ensure that the correct processes are in place. Although this will involve additional work and cost in the short term, the benefits of offering clear advice and suitable products will not only satisfy the regulator’s needs, but also those of the customer.