The Mortgage Credit Directive (MCD) specifies that mortgage lenders across Europe must use the same disclosure document. The European Standardised Information Sheet (ESIS) will eventually replace the Key Facts Illustration but a period of transition permitted by the Financial Conduct Authority (FCA) means three versions could be in use until 21 March 2019.
Lenders can choose to move straight across to the ESIS or they can adapt and work with the existing KFI until the final cut-off date. Taking the latter option means either embedding the extra information into the body of the KFI or tagging it on to the bottom of the document, which is the least expensive and easiest method.
Henry Woodcock, principle mortgage consultant for Iress, said currently 13 mortgage lenders, which rank in the top to mid-range of the largest 30 lenders, have made a decision over which document to use. He said three of those lenders had decided to move directly over to the ESIS, eight had decided to use the KFI-plus version and two were adding the additional information to the bottom of the existing KFI.
“Multiple versions will make it more complicated for borrowers who are trying to compare mortgage products from different lenders,” he said. “I expect a lot of lenders will opt for the version which lists the extra information at the bottom because they are of the mindset that they have to switch over to the ESIS anyway so why bother with the extra expense and time now.”
To comply with the directive the KFI, needs to include three additional disclosures; information on the seven-day right of reflection, information on foreign currency loans where applicable and an Annual Percentage Rate of Change (APRC) and monthly payment illustration should interest rates rise to the highest level seen in the past 20 years.
Woodcock said having multiple versions of the disclosure document will impact most heavily on borrowers’ ability to easily compare the APRC.
