The Mortgage Credit Directive (MCD) comes into force on 21 March, introducing an EU-wide framework of conduct rules for mortgage firms. Less than two years after the UK’s Mortgage Market Review (MMR), the MCD is designed to foster a single market for mortgages and to help protect consumers.
One of the biggest changes will see the second charge lending market become regulated by the FCA. The directive covers all lending where the purpose is to buy or retain rights on a residential property.
This means second charge mortgages (including regulated loans entered into prior to 21 March) will be subject to the FCA’s mortgage rules. The regulator has said although the MCD is largely based on the FCA’s existing mortgage rules, there are some new requirements.
It says, “Firms will be required to provide an adequate explanation of a product’s essential features, issue a binding offer, provide a seven day reflection period, and give customers a European Standardised Information Sheet (ESIS) disclosure document.”
In order to carry out second charge mortgage business after 21 March, lenders, administrators and brokers have to be authorised and hold the correct mortgage permissions.
But perhaps the biggest change in the MCD will be the broking of buy-to-let mortgages. The buy-to-let market has been booming in recent years, but the MCD will mainly affect “accidental landlords” – people who did not buy the property with the intention of renting it out, but had to for various circumstances. Buy-to-let currently falls outside the existing regulation. The FCA point out that arranging, lending, advising on and administering consumer buy-to-let mortgages will now be subject to a legislative framework.