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For Intermediary Use Only
EU Mortgage
Credit Directive:
A lender’s perspective
Tony Fullbrook
Policy & Regulatory Manager
Today’s Content:
• What is the Mortgage Credit Directive?
• What are the key changes?
• How are lenders addressing these changes?
• What does this mean for intermediaries?
What is the Mortgage Credit Directive?
• Europe’s response to the financial
crisis
• Focused on consumer protection
• Traces to Consumer Credit Directive
• United UK position on Directive
• Implementation 21 March 2016
(some transitional elements are
later)
• Significant overlaps with MMR;
which leaves changes still to do
Advice
MMR
Responsible
lending
ERCs
Arrears and
foreclosure
Best interests
MCD
What are the key changes?
Disclosure changes
• Lenders will provide an ESIS or KFI+
• Broadly similar content but different layout
• KFI+ includes additional elements; 20 year APRC,
Foreign Currency loans
• KFI+ valid until March 2019
• Must be ESIS for second charge loans
Until full roll out intermediaries will need to be familiar with both
ESIS and KFI+ as the approach will vary from lender to lender
Disclosure changes
• ‘Binding’ offers including ‘right of reflection’
• Lender is bound by offer for reflection period
• Reflection period minimum of seven days
• APRC & 20 year APRC
• 20 year APRC based on highest rates in the last 20 years
• Adequate explanations
• Service & product disclosure
• Explain essential mortgage characteristics
• Explain the effects of taking out a loan
Foreign Currency
Loans
Specific Intermediary
changes
• Additional sales and
offer disclosures
• Scope of service
• Ongoing disclosure
requirement
• Limiting arrangements
• Professional Indemnity
Insurance
• Passporting
Knowledge and
Competency
Changes in scope
• Appropriate to role:
extended deadline to
2017
• Consumer Buy to Let
(CBTL)
• Second charge
mortgages
What is meant by consumer BTL?
A ‘consumer’ means a natural person who is acting for
purposes which are outside his trade, business or
profession
• Excludes lending to Limited companies or SPVs
• Consumer BTL is defined by:• Borrower circumstances
• Borrower BTL experience
• Borrower intentions
Categories of BTL
BTL segments fall into three categories:
Regulated
Mortgage
Contracts
“family BTL”
Investment
property loans
“business
BTL”
Consumer
BTL
“accidental
landlords?”
Which BTL borrowers become
Anyone who is NOT entering into an agreement for the purposes of a
consumers?
business carried on, or intended to be carried on, by the borrower
Business BTL is defined as…
• A customer who already owns or is looking to buy the property
• It would be let out but NOT occupied by themselves or a close relative
AND
• Since purchase, neither they or a close relative have lived there
OR failing the above:• If the customer is already a landlord i.e. lets another property (but not
to themselves or family)
Which BTL borrowers become
• Property purchased for investment purposes will NOT be
consumers?
classed as CBTL
• Remortgage COULD be classed as CBTL if:
• Not already a landlord (mortgaged or not) AND
• property has been occupied by borrower/related persons
since purchased
Potential scenarios (not an exhaustive list)
• Moving home and letting existing home “Let to Buy”
• Property currently let to a related person
• Inheritance
What changes will BTL borrowers see?
• Alternative framework sets
standards for lenders and
intermediaries
• Act honestly/ fairly/
transparently/professionally
taking account of rights and
interests of consumer
• Advisory standards,
remuneration, knowledge &
competency, tying and bundling
• Sales Process and disclosure
requirements
• Initial disclosure
• Information requirements
• Illustrations – APRC, foreign
currency
• Declaration
• Adequate explanations
including consequences of
default
• Creditworthiness
• Exercise reasonable
forbearance; arrears charges
A Lender response to MCD
• Lessons Learnt from successful MMR implementation
• Early mobilisation and engagement with
stakeholders is key
• Multiple technology releases
• ESIS or KFI+? KFI+
• KFI/Offer augmented to cover the additional MCD
requirements
• Existing Offer document will be used as the Binding Offer
with a 10-day Reflection Period
• Receipt of COT from solicitor waives reflection period
Foreign Currency Loans
• Customers with foreign currency income continue via
Barclays Wealth channel and systems
• Major currencies will be accepted; loans will be in
Sterling only
• Warning letters will be issued monthly if 20% negative
currency swing against borrower, no currency switches
Consumer Buy to Let
• Business as usual
• CBTL categorisation set by system
• Standard process
• No need for borrower/intermediary
to choose status
• Additional upfront filtering
questions
• Enhanced pre-submission
declaration
• ‘KFI’+ illustration and offer
with additional disclosures
across ALL BTL, not just
Consumer BTL
• No differential treatment
• Consumer BTL register
Timeline
• MCD has no pipeline provisions
• Does not capture cases offered before MCD implementation
• Upstream questions for CBTL & Foreign Currency
• Offer covering letter information for pipeline cases
Finally
• Implementation – minimise disruption
• Another regulatory layer
• Differences in lender approach
• Lenders and intermediaries in partnership
Thank you
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