The Mortgage Credit Directive is due to be implemented by the Financial Conduct Authority on 21 March, with one of the main changes being an update of the information sheets that customers receive when applying for a mortgage.
While existing regulation means that lenders and brokers are better prepared than many on the continent, the new rules will replace the Key Facts Illustration (KFI) with the new European Standardised Information Sheet (ESIS).
Lenders must begin using the ESIS by 21 March 2019, but until then, they can continue to issue a KFI or KFI plus to provide the same level of information as an ESIS.
There is no prescribed format for the offer document under MCD, which means that banks and building societies have been free to produce their own versions within the regulatory framework.
Simon Gammon, managing director for Knight Frank’s in-house broking service, said the problem is every bank and building society has a different approach to complying with the new rules.
He said this has resulted in brokers having to memorise all the different approaches in order to ensure they continue to give good advice.
He said: “We have compiled a spreadsheet of all the different interpretations and have managed to get on top of it because we’ve got the manpower, but for smaller advisers it is going to be a bumpy ride to begin with.
“Properly training brokers is going to be really important between now and March. It is boring but crucial to remaining complaint.”
In the last few months various providers have outlined their strategies, with Skipton Intermediaries promising to use the ESIS from the start of this year, Natwest Intermediary Solutions confirming ESIS implementation from mid-January and Nationwide stating it would use KFI plus before the deadline.
Just last week, Leeds Building Society announced its preparations, with director of business development Martin Richardson stating for the time being they have adopted an updated KFI plus, rather than the European Standardised Information Sheet format.
“Pipeline applications where the signed offer acceptance form is received by 1 March, or applications which have been submitted after our MCD systems implementation on 20 December, will not require any further action,” Mr Richardson explained, adding other pipeline applications will receive additional MCD disclosures closer to the regulation date.
Jeremy Duncombe, director of Legal & General’s Mortgage Club, said they have worked hard with lender partners over the last few months to pull together a live-updated MCD Matrix and hub to provide a one-stop-shop for brokers with information on the regulation, along with the rules lenders are enforcing and when.
He said while the regulation may seem complex initially, the main requirements can be simplified into four key points:
| Lenders are interpreting the rules differently, so it’s crucial that brokers stay up-to-date with their plans. |
| Brokers will need to decide their position on advising on second charge mortgages. They can either fully advise on second charge loans themselves, not advise on them at all, or refer their customers to a third party. They must state their position on this, and if they choose not to advise in this area, they must inform clients so that they are aware it is also an option. |
| In order to classify themselves as independent or whole of market, brokers must advise in every area of the market, including second charge products. |
| Brokers also need to register with the FCA in order to be able to advise on consumer buy-to-let products post-MCD. If they fail to do this before the deadline, they won’t be able to advise in this area of the market. |
The Financial Conduct Authority’s technical mortgage specialist Keith Hale has previously described the EU rules as adding little consumer benefit to an already tightly-regulated UK industry, post the 2014 Mortgage Market Review.
Last May he warned advisers to brace for a “three-year period of flux”, adding they would need to get used to issuing different disclosure documents for different clients from different lenders.
In terms of the regulator’s approach to mortgage applications which straddle the March 21 implementation date, it confirmed that this would be a commercial decision for individual lenders.
peter.walker@ft.com
