In the final rules published on 27 March the Financial Conduct Authority (FCA) said it had identified a conflict between the MCD and the transitional rules targeted to free up mortgage prisoners under the Mortgage Market Review (MMR).
The MMR allowed borrowers who held a mortgage before the 26 April 2014, when the MMR was implemented, to be exempt from a affordability assessment if they were remortgaging but not increasing their loan amount, or doing so for essential home repairs.
But the regulator said that to comply with the MCD only remortgage customers staying with their existing lender will be exempt from the affordability assessment, known as the transitional rules.
Ipswich Building Society and Melton Mowbray both changed their policies recently to begin accepting applications from borrowers remortgaging away from their lender assessing applications using the transitional rules. Most lenders had been reluctant to use the rules fearing a future backlash from the FCA.
On the FCA’s decision to rule out the affordability exceptions, chief executive of Melton Building Society Martin Reason said: “This change of direction by the regulators is disappointing for customers and frustrating for the society as we believe it is important to give borrowers who have a good payment record a choice of competitive mortgage products.”
Paul Winter, chief executive of the Ipswich Building Society, echoed the sentiment.
“We are disappointed that the MCD seems to prohibit the use of the transitional arrangements and we will be discussing with all relevant parties the interpretation of the directive. In the meantime we will continue to use the transitional arrangements to help those we describe as ‘mortgage misfits’.”
Reason said the Melton would also continue to assess applications from new remortgage borrowers under the transitional rules until the MCD became law in March 2016. He urged brokers to make borrowers aware of this service before time ran out.
In a statement released shortly after the final rules were published the BSA said that the the directive offered no additional benefit to UK consumers and instead added cost and complexity to the mortgage process.
“The fact the directive cuts across the MMR transitional arrangements is evidence of this,” it said.