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European Mortgage Credit Directive – intermediary friend or foe?
Where there’s change, there’s opportunity says Richard Pike, sales & marketing director at Phoebus Software on the Mortgage Credit Directive
The implementation of the Mortgage Market Review has renewed many lender- intermediary relationships due the fact that, in reality, an advised sale via an intermediary will be more cost effective and, in some cases possibly more compliantly, than via in-house channels. We have seen major brands such as HSBC moving into the intermediary space to try and gain market share in a more highly regulated environment.
Good quality intermediaries providing good quality business have always been a major win for any lender that provides excellent customer service, and with AMI predicting that intermediated business will account for 75% of originations by 2017 compared to 55% in 2012, this seems to be a reasonable assumption. The increase of business such as buy-to-let and equity release which, in general, have an intermediary advice-driven model, can only cement the intermediary stronghold moving forward.
Product sales data reporting
The final part of the MMR jigsaw is (or should be) being implemented by the industry as I write this. Product sales data (PSD) reporting is being brought in by the FCA in January. This will report on the quality of all intermediated business, as well as that from other distribution channels.
More intermediated business, better controls and more transparent reporting should be of benefit to the industry and to the consumer, which is what everyone wants isn’t it? I think we will see the full and final impact of MMR later next year, but wouldn’t it be great to give this a resounding “YES!” once the dust has settled?
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So, from an intermediary perspective, both the regulator and the lenders themselves seem to be encouraging more consumers to engage with intermediaries, which is great. What is next could actually provide even more business opportunities for intermediaries, whilst perhaps making lenders take another deep breath about possible operational and compliance requirements.
‘Where there’s change there’s opportunity’
In September 2014 Consultation Paper CP14/20 was issued, entitled, ‘Implementing the Mortgage Credit Directive and the new regime for second charge mortgages’. Following an initial review, it looks like there will be impacts on both lenders and intermediaries, but I am a believer in where there’s change there’s opportunity and there will be opportunities both from an intermediary and lender perspective. One major factor is that secured loans will effectively be brought under the MCOB umbrella and be subject to far more first charge rules and procedures.
By the looks of things, affordability calculators will be required for both first-charge mortgages and secured loans, both which will require interest rate buffers; both advice and execution-only sales will apply.
On fees, intermediaries will have to ask the applicant to make a positive selection to pay fees up front or add them to the loan and a new ESIS illustration, similar to a Key Facts Illustration, will be issued to applicants for secured loans; and finally, once all of the information is gathered to satisfy lender policy, a seven-day binding offer will be issued to replace the credit agreement.
So all in all, a much more aligned process to firsts and something that may encourage intermediaries to deal with lenders direct on secured loan cases, and visa versa.
Technology will be a driver to implementing these changes and undoubtedly sourcing companies are looking at the opportunities this new secured loans environment will bring in a more mass intermediated market.
Because of the similarities in the new process, the potential for more mainstream lenders and banks entering the secured loans market is probably there subject to risk appetite, but this will potentially involve more investment in intermediary originations platforms. However, the opportunity is there if the market requires it, and we’ll await to see how the EMCD evolves and affects the sector moving forward.