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What is the European Mortgage Credit Directive (MCD)?

On 21 March 2016, the ‘European Mortgage Credit Directive’ (MCD) will be implemented across Europe. Here in the UK, the Financial Conduct Authority (FCA) and HM Treasury have been working together to ensure a smooth transition and minimal disruption during this period. In reality, and in contrast to the implementation of the MMR back in 2014 bringing stricter affordability rules to the mortgage market, most consumers won’t notice or be affected by the roll-out of the MCD.

Why is MCD being introduced?
The MCD has been developed to standardise mortgage agreements across Europe; designed to benefit consumers by offering additional information in the mortgage contract and introducing a reflection period of at least seven days, to give the consumer time to assess the implications.

How will it affect mortgage intermediaries?

Regulation of second charge loans
Administrators, lenders and brokers will need to be authorised by the FCA to continue second charge mortgage business after 21 March 2016. As an intermediary, this may impact upon the service you provide. Since mortgage networks and compliance providers are handling the compliance aspect of second charges in differing ways, it would not be appropriate to offer guidance – with the exception of recommending that you liaise with your compliance advisor.

Transition to the European Standardised Information Sheet (ESIS)
You will see a transition to the ESIS by 21 March 2019. Currently, every mortgage offer is accompanied by a Key Facts Illustration (KFI), but this will be phased out between 21 March 2016 and 21 March 2019. Some lenders, however, like us, have already chosen to implement the ESIS. Things that must be included on the new ESIS that are not currently displayed on the current KFI are:
● Showing a second Annual Percentage Rate Charge (APRC) which will show the consumer the highest rate in the last 20 years.
● Details around the Binding Offer.

Binding Mortgage Offers
MCD requires lenders to make a binding mortgage offer and to give the customer at least seven days to reflect on it. During this period, the offer is binding on the lender but the borrower can accept it at any time.

Consumer Buy-To-Let (CBTL)
Advising on, arranging, lending and administering CBTL mortgages will be subject to a legislative framework as set out in the MCD. MCD defines a CBTL mortgage contract as a buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower

Foreign Currency Loans
The Society will no longer be offering Foreign Currency Loans. For lenders offering mortgages where the applicant is paid in a foreign currency, the lender is obligated to ensure the borrower receives a warning if the exchange rate fluctuates by 20%, thus impacting on the value of their borrowed sum.

This information is for your reference only. To help you implement MCD regulation we are unable to offer any guidance other than to recommend you to liaise with your compliance officer.