MCD – one year on

12 April 2017

The Mortgage Credit Directive (MCD) came into force 21 March 2016. At Bovill we helped a number of firms update their mortgage sales process and develop their policies and procedures to comply with the new requirements.

The Mortgage Market Review (MMR), which came into force in April 2014 incorporated many of the more significant changes and borrower protections, that the MCD was (at the time) expected to introduce. Accordingly, most parties agree that the remaining changes that the UK mortgage industry was forced to incorporate in 2016 were largely administrative – and arguably did not significantly enhance the protections that UK mortgage borrowers previously benefitted from – indeed in some cases, the MCD changes have increased the potential for confusion or borrower frustration (e.g. the requirements in relation to binding offers and reflection periods).

The main changes that came in with the MCD were:

  • Loans that are unsecured or secured on other assets, that are intended to acquire or retain rights in residential property – defined as Article 3(1)(b) Agreements – are now regulated
  • Second (or subsequent) charge loans are now included within the definition of a Regulated Mortgage Contract (RMC)
    The introduction of a set of regulatory requirements for ‘Consumer Buy-to-Let’ mortgages
  • The introduction of the concept of Foreign Currency Lending (FCL) and a requirement to put in place reasonable measures to mitigate the currency risk the borrower may be exposed to
  • A new standardised illustration – the European Standardised Information Sheet or ESIS
    –  n.b. There is a transitional in place until 2019, allowing lenders to continue to use their KFI, with additional top-up disclosures – i.e. a KFI+ approach
  • A new method of comparing mortgage interest rates, the annual percentage rate of charge APRC which includes the costs and payments over the full term of the mortgage
  • A requirement to provide an adequate explanation of the main features of the product to all borrowers (including those transacting on an execution-only basis), and
  • The requirement to issue a binding offer and a seven-day reflection period.

Download the full artice in PDF:   MCD – one year on

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