UK regulators must learn from the positive example of the Mortgage Market Review and introduce a set of ‘transitional rules’ to ease the move to new mortgage regulations when the European Mortgage Credit Directive is implemented, the Council of Mortgage Lenders has said.
In its response to the Financial Conduct Authority’s consultation on transposing the rules into UK regulation, the CML raises concerns over a number of provisions it claims will add delays and complexity to mortgage processes, saying measures to deal with ‘pipeline’ cases will be “crucial”.
CML states it is important that rules were brought in to cover both pipeline cases and that the Financial Conduct Authority makes clear the rules do not apply to “contract variations” for which the directive was not ‘intended’.
When the MMR was implemented, the watchdog bowed to industry calls for provisions to protect existing borrowers with transitional rules which exempted those not increasing borrowing or not taking out new loans from tough new affordability tests.
While widely welcomed at the time, controversy has since followed as many lenders have failed to use the flexibility and applied tougher tests to many existing customers, resulting in claims of consumer detriment.
According to the FCA consultation published in September, the Mortgage Credit Directive could set the bar higher for those seeking a mortgage by requiring lenders to apply 20-year high interest rate projections.
The paper states compliance with the European rules will “be achieved largely through reliance on existing mortgage rules”.
Among its list of concerns CML warns the new requirement for a ‘reflection period’ following a “binding” offer will confuse people, stating that the formal offer should be treated as the binding offer.
It also believes the ‘reflection’ period could be ignited much earlier in the process than the FCA is suggesting. The present proposal allows the reflection period to start shortly before the practical completion of the purchase but the CML warned this will “inevitably delay” the buying process.
Elsewhere, the industry body expressed concerns at the disruptive definition of foreign currency loans, claiming that the proposals apply too widely and the scope should be more narrowly defined.
According to Andrea Rozario, former director general of the Equity Release Council, proposed changes to the definition of a lifetime mortgage as part of the MCD have far-reaching implications and could erode “safeguards” around equity release mortgages.
Paul Smee, director general of the CML, stated that the directive provides little if any benefit to UK consumers or the operation of the market.
“We believe that both the government and the regulator share this view. So, while we naturally recognise the need to comply, we believe that the UK should do so in a pragmatic way that disrupts the existing robust regulatory regime as little as possible.”