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Government makes helpful concessions on EU directive plans


Published: 5 February 2015 | Author: Bernard Clarke

Legislation to incorporate the European mortgage credit directive into the UK has now been published by the government. New regulations were announced at the end of last month, following government consultation on its original proposals. We had submitted a response to the earlier proposals, summarised in our press release at the beginning of January.

Regulations are being introduced to uphold the directive as a means of applying common standards for EU members to meet in order to protect consumers taking out a loan to buy a residential property.

The new regulations include some concessions by the government that will help firms manage applications that are in pipeline when the directive is expected to take effect from 21 March next year. Lenders will also be able to apply the European rules three months earlier than the Treasury had originally proposed – now from 21 September this year – which may help some firms manage their pipeline business.

The new regulations introduce some positive changes to earlier proposals for regulating buy-to-let, where this lending is to consumers rather than for business purposes. These include:

  • a more explicit definition of the consumers to whom the regulations will apply;
  • standardised requirements for disclosure, the treatment of early repayment charges and the assessment of affordability; and
  • clarity on the meaning of advice.

The regulations are not intended to affect the vast majority of buy-to-let lending, which is done for business purposes and is therefore not covered by the directive. 

The government is also planning to ensure implementation of the directive coincides with plans to fulfil a long-term commitment to regulate second charge lending under the regime already applying to first charge loans. The government has been intending to make this change for a number of years, but decided to wait for the new EU rules to try to avoid excessive disruption to both lenders and customers.

In publishing the new regulations, the government has not made any changes to its earlier proposals for second charge lending, but the new rules do provide greater clarity in some areas.