The European parliament has provisionally approved the mortgage credit directive.
An official vote on the final text of the directive – officially known as the directive for credit agreements relating to residential property – will not take place until the Council of Ministers agreed so-called correlation tables, which describes how each member state transposes the new rules into national laws and how much member states can add to the new rules.
However, the official vote is seen as a formality and it is highly unlikely the text will change from its present format.
It is not yet know when the official vote will take place, although the very earliest this could happen is in October, when the next plenary session takes place.
Building Societies Association head of mortgage policy Paul Broadhead says the next phase, as far as the UK in concerned, is for the Treasury, the Financial Conduct Authority and the industry to come to an interpretation of the laws and implement them, following the vote.
He says: “There will be lots of discussions there about how everyone [the Treasury, FCA and other UK stakeholders] interprets the directive but we have been working together as a group for so long we pretty much all know what we need to do. Now it is making sure we get to a good outcome for UK consumers.”
The purpose of the directive is to “harmonise” mortgage regulation throughout EU member states.
A lot of the new rules mirror those contained within the Mortgage Market Review – to come in on 26 April next year – especially around lenders’ obligation to ensure the borrower can afford their mortgage.
However, there are some elements which do not appear in the MMR, like the proposal which says lenders have to provide an extra APR outlining worst case scenarios for borrowers. Under this proposal, mortgages where borrowers are tied in for under five years will need to include an APR for what they are paying during the lock in period and a worst case scenario showing the most they could have been charged on a lender’s SVR over the previous 20 years.
A new European standardised information sheet will replace the key facts illustration used in the UK, although lenders may be able to keep the KFI for five years after the final rules have been agreed upon, if the regulator chooses to do so.
Originally, the directive would have captured buy-to-let mortgages but the UK mortgage industry successfully argued that these mortgages should not be regulated in the same way as residential mortgages.
The UK also secured four crucial opt-outs for proposals, decided upon at the committee stage of negotiations, on packaged products, meaning lenders will be able to continue to offer guarantor mortgages, shared equity loans, offset mortgages and endowments.
The proposals require lenders to offer borrowers a “cooling off” or “reflection” period – expected to be seven days – although the customer can choose to go ahead with the transaction during this period if they wish to do so.
The directive also proposes lender and intermediaries must ensure they inform the customer if they are receiving advice or just information. However, in this country the regulator has banned non-advised sales for all but minor contract variations. Moreover, brokers must ensure they make borrowers aware of any commission they receive from a lender.
Conservative MEP Vicky Ford says: “I don’t believe we ever needed European law on mortgages. However, we have managed to get rid of the worst bits which could have shut down parts of the UK market with a heavy handed approach to buy-to-let and first-time buyer products. There remains concerns over the key facts illustration, which is unnecessarily handed a one-size fits all.”
The UK will have two years to introduce the rules into national laws and regulations once the European parliament has voted through the final text and it has been published in the official journal of the EU.