Should lenders implement the EU’s Mortgage Credit Directive early or leave it until the deadline next March?
Ahead of the MMR, some lenders implemented changes quietly and early while others left them until the last minute. Many regarded keeping things under wraps as a competitive advantage.
The skill of the intermediary channel meant that we adapted to any new requirements with speed, intelligence and our natural focus on making things as simple for the consumer as possible.
The changes required by the EU’s Mortgage Credit Directive will need more fundamental reforms to disclosure documents, additions to the KFI or its replacement, changes to the APR calculations and the introduction of binding offers and consideration periods.
With a six-month window to make changes, some lenders may go early to ensure they have their IT work secured before the end-of-year embargo on changes. Others may wait for the embargo window to reopen and bring their changes in the weeks after 1 February.
The only certainty is that brokers will have to deal simultaneously with old-style KFIs, new KFI-plus documents and, for some, the European Standardised Information Sheet. Consensus will also be needed on how to deal with the new buy-to-let regimes.
The loss of the transitional rules for new contracts is a blow, making even more consumers mortgage prisoners unless the industry adopts a more pragmatic approach.
Lenders need to open up the use of the transitional provisions to move borrowers from punitive contracts before we lose this facility in March next year.
None of this will bring a better market for UK consumers and it will increase bureaucracy. Thus, from the perspective of both broker and consumer, it would be better to implement as late as possible and all at the same time.
Broker firms will need to decide whether to include second charges in their scope of service, and to bring in new, paper-based disclosure documents, including lists of lenders that they will consider.
There is a huge amount to be done, probably much more than for the MMR because much of that had been done in the years since initial consultation. We should not underestimate the level of change.
Robert Sinclair is director at the Association of Mortgage Intermediaries
After less than a year spent bedding in the MMR, lenders face another set of major changes via the European Mortgage Credit Directive.
This will significantly affect a number of areas, ranging from the replacement of the KFI to regulation on second charge loans, consumer buy-to-let, foreign currency mortgages and even the transitional rules where they are applied to an existing borrower at another lender.
Knitted into these changes has been the flexibility to turn on the new rules early. When the FCA published its first consultation paper on the MCD last year, it proposed to turn on the new rules from December 2015. But the feedback it received from some in the industry was that, due to the scale of the changes they would have to make to systems and processes, they wanted more time. As such, the FCA allowed firms to comply with the final rules from 21 September 2015 – six months before the implementation date for the MCD. While most respondents accepted that, in reality, they were unlikely to be ready in advance, the flexibility was deemed useful.
As for whether firms should implement ahead of time, this will come down to when lenders can get their ducks in a row. The regulatory changes all need to be properly digested, evaluated as to their impact and then implemented. And the changes recommended – particularly whether to go straight from the KFI to the ESIS or opt for a KFI-plus option until 2019 – will all take time.
From an intermediary point of view, if a lender implements the MCD early it could find it necessary to assess whether firms are lending under the MCD or MMR. But even after the final cut-off point for the MCD on 21 March 2016, there could still be much variation in terms of whether firms are offering an ESIS or KFI-plus. There will likewise be a similar period of adjustment as lenders bed in the new rules.
The EU rules have been foisted on the market and HM Treasury and the FCA have worked hard to ensure they cause as little damage as possible. But the scale of the changes coming down the track means it was always going to be a bumpy ride.
Paul Broadhead is head of mortgage policy at the Building Societies Association