The full title is, “Proposal for a Directive of the European Parliament and of the Council on Credit Agreements relating to residential property”. Snappy, isn’t it? Fifty-five pages long and, no, before you ask, I have not read it all, yet.
The thing that has struck me, however, is less the content than the timetable. If, as I understand it, this gets pushed through its EU processes by the end of the year, then member states will be given two years to implement the requirements.
Now, what else is likely to happen in the UK mortgage market over the next two years?
Later this year, the FSA is due to publish its detailed cost benefit analysis for mortgage market reform and its final proposals for changes to the rules governing mortgage lenders and intermediaries. We have been promised by the FSA that the reforms will not be rushed, and we have been promised that there will be no rule changes this year. And we have been told that the requirements for Individual Registration will come into force in 2012 or 2013.
So, I would guess that regulatory draughtsmen will not be seeing a lot of the London Olympics, busy as they will be in writing new MCOB rules which can take into account the demands of the EU, alongside those of the FSA.
The EU has set out its aims for the Directive as, “creating an efficient and competitive single market for consumers, creditors and credit intermediaries, with a high level of protection”, and as a second aim, “promoting financial stability by ensuring that credit markets operate in a responsible manner.”
Sound familiar?
The CML has already commented that we run the risk of “an unholy confusion” and it will clearly be keen to make sure things are thought through in an orderly and sensible manner.
But I remember the time and effort, and the expense, of getting all our systems and lenders systems to produce industry standard KFIs in the run up to M Day. Lights dimmed across the country as these systems were developed. Acres of forests were hacked down to print trial documents again and again and again. Can we really go through this process again to develop a cross-border compliant mortgage illustration document? This will be called a “European Standardised Information Sheet” or ESIS for short.
I am also looking forward to the European standardisation – sorry, “harmonisation” – of the APR calculations. Given that after nearly 30 years we can’t get clear agreement on how to calculate APRs for mortgages in the UK, the development of a European “harmonised” approach should prove to be the spectator sport of the decade.
The Proposed Directive also suggests the need for credit intermediaries to produce information about their identity, status, and relationship with the lender. Is this an IDD ? Aren’t we just about to make those optional?
I have written before about the double-edged sword that the current lack of a timetable for MMR implementation represents.
On the one hand, it is good to know that we don’t have to change things, tomorrow. On the other hand, the lack of a timetable certainly makes planning difficult, and it can lead to market participants making up their own policy changes on the assumption of the direction of travel of the regulator. Look at recent moves on interest-only mortgages as an example.
This lack of a timetable is not a recipe for an orderly and competitive market.
So, in this case, I do hope that our regulators take the opportunity to announce that these two major changes will run to the same timetable and that the EU requirements will be built fully within the MCOB rule changes that we are already expecting. Otherwise, it will feel like we are trying to land two jumbo jets at once.
By the way, for those of you really interested in what the “Proposed Directive” says, it is available here.
Happy reading.
