The forthcoming European Mortgage Credit Directive will impose new requirements that will not deliver extra protection to UK consumers and will impose higher costs on firms, the Council of Mortgage Lenders has said.
Branded the “most significant” EU-wide regulation to affect the mortgage market since the financial crisis, the CML argued the directive adds “little value” to the UK mortgage market.
The CML said: “We already have in place a regulatory regime that offers consumers full protection.”
The UK will be deciding how to implement these changes over the next 12 months, considering how they fit with the recently-implemented Mortgage Market Review, with both the Treasury and the Financial Conduct Authority launching separate consultations.
In the trade body’s response to the Treasury’s consultation on the EU mortgage regulations, it argued that the UK should do enough to meet its obligations as an EU state in implementing the rules, but that going further could risk damaging an already functioning market that delivers good consumer outcomes.
While it broadly agrees with Treasury’s approach, it highlighted specific issues with pipeline and buy-to-let.
“The directive does not make provisions for mortgage cases that are open but not complete by the implementation date of 21 March 2016. This hard deadline, without a transitional period, suggests there could be issues for consumers completing mortgages around this period.
“Firms typically make mortgage offers that may be taken up within 6-12 months. There could therefore be thousands of cases spanning the implementation date, potentially causing disruption and frustration for would-be borrowers. We have suggested a number of solutions in our response to help smooth this transition and to avoid unintended consequences for consumers.”
In terms of buy-to-let, the UK has so far remained outside the regulated system applying to residential mortgages, as buy-to-let has been considered a commercial mortgage, and the CML has branded it “disappointing” if the UK were required to change this long-standing approach because of European rules.
The organisation already expressed disappointment that the Treasury made a “U-turn” on buy-to-let when releasing its consultation and approach to implementation on the European rules, while leading industry figures have come forward to share the view that the Mortgage Credit Directive is an unnecessary interference between mortgage lender and borrower.
“But, in accepting that the UK must do something, we support the Treasury’s decision to use a discretionary framework option for BTL lending, rather than apply the mortgage credit directive in full. By applying the framework only to customers who have the characteristics of a consumer, disruption should be minimised.”
The CML added that directive could, however, ultimately lead to BTL loans being regulated under a “three-tier system” with non-regulated loans, as well as regulation under both consumer BTL and mortgage conduct of business rules which will “potentially create confusion” for BTL borrowers and complexity for lenders.
The CML will also respond to the FCA consultation before the end of the year.
peter.walker@ft.com
