The Mortgage Credit Directive (MCD) will be implemented on the 21st March 2016. The final rules for the MCD have been issued and can be read in full by clicking here:
The Mortgage Credit Directive final rules PS15/9
BTL Mortgages – implementing the Mortgage Credit Directive PS15/11
The Main highlights of the Directive:-
- Written disclosure
- KFI replaced by European Standard Information Sheet (ESIS) or ‘KFI plus’
- Removal of transitional provisions for re-mortgages from other lenders
- Alternative finance options and consideration of scope of service
- No transitional period for pipeline cases – agreements pre 21/03/2016 will not be subject to MCD i.e. those at offer stage or later
- Minimum limits of PI cover - 460,000 euros per claim and aggregate 750,000 euros per calendar year for all claims.
- Suitability letter remains not compulsory, but needs durable disclosure
- Remuneration cannot be contingent on sales targets
- ‘New’ binding offers
- ‘New’ reflection period for clients
- Extra requirements on foreign currency mortgages
- 2nd charge loans become regulated contracts – 2nd charge firms and master brokerages applying to become FCA regulated.
- Buy to Let mortgages move out of the Consumer Credit legislation and become non-regulated.
- ‘New’ Consumer Buy to Let permission for clients who are not entering into a BTL transaction wholly or predominantly for business purposes i.e. let to buy or accidental landlords (inherited properties etc.)
Timetable and Key Milestones
- MCD was adopted by the UK on 4th February 2014
- Some of the MCD was implemented as part of the MMR
- Effective date 21st March 2016 – firms can choose to adopt from September 2015
- Some rules have transition periods up to 2019
- Treasury will carry out a review of the implementation by September 2018 and feed back to the European Commission in 2019
- Seconds firms can now apply for regulated mortgage permissions
Paradigm will produce a number of helpful bulletins on the Mortgage Credit Directive reviewing the most important areas that will impact on our Firms as a countdown to the live date of 21st March 2016. We will endeavour to give you guidance on what you will need to do for each area including the below. We will keep you up to date with any changes and any hints and tips to make the transition to the new MCD rules as easy as possible for you and your clients.
- Disclosure rules and changes to suitability reports
- Consideration of your scope of services
- ESIS explanations
- Binding offers and reflection periods
- Applying for Consumer Credit BTL permissions
Mortgages Technical Director
Paradigm Mortgage Services LLP