Brussels sprouts a last-minute spoiler

No sooner has the deadline for responses to CP146 closed when it begins to emerge that Mortgage Day – the day in 2004 when the UK mortgage market becomes regulated – may never actually happen anyway. If those ever-meddling Brussels beaurocrats get their way you can kiss goodbye to the current FSA proposals forever.

As we report on page 4, UK mortgage regulation could be scrapped if draft proposals under the European Consumer Credit directive are adopted. These are anxious and fragile times for the mortgage industry. The EC directive is currently beginning its passage into European law and pundits are expecting mortgage loans to be brought under the regime.

At the moment, secured lending falls outside the current proposals but EU commissioners want it reined in. Should that happen, it would effectively put a stop to UK mortgage regulation by the FSA.

The directive will not come into force until 2006 – two years after Mortgage Day. There are big cost implications here, and a big question for the FSA has to be whether it is even worth regulating the mortgage market for just two years.

Leaked details of the draft directive reveal that under this European regime lenders would have to provide a new credit agreement every time capital is drawn down, be it for a further advance or a second charge – it would even apply to car finance or any other lending agreement. And it&#39s this that will effectively kill off flexible lending. After all, what&#39s the use in a loan with a flexible draw-down facility when, each time you want to draw on the capital, you have to sign a new credit agreement?Or a chequebook you can&#39t use?

Without assurances that this directive – which would require advice to be given in every single case – will be significantly amended, it will drive a coach and horses through the FSA regime.

There are concerns in the industry already, not least at the Council of Mortgage Lenders. As Kate Main, senior policy adviser at the CML, says: “We are concerned at how this has been drafted and how these plans may cut across what the Government is trying to introduce. If we are faced with the prospect of dual regulation, we would feel the need to bang the drum for the FSA to drop its plans.”

The FSA is adamant that what it has proposed is what is “best for the UK market”.

Only time will tell.