CML responds to FCA on implementing the Mortgage Directive
Published: 5 January 2015
The Council of Mortgage Lenders has submitted its response to the Financial Conduct Authority's consultation on implementing the European Mortgage Credit Directive (MCD) in the UK, identifying four main areas where a change of approach is needed to achieve minimum disruption to the UK mortgage market.
The four areas where the CML has concerns are:
- The absence of sufficient measures to manage the transition to MCD rules. At present, there is no provision for "pipeline" cases. Such a provision was crucial in the successful implementation of the Mortgage Market Review and the CML believes this approach should be replicated for the MCD.
- Fundamental changes to the sales process that will confuse customers. The new requirement for a reflection period following a "binding" offer does not need to introduce a new step in the conveyancing process, as the current implementation proposal suggests. The CML says that the formal offer should be treated as the binding offer - this fully addresses the MCD requirements while minimising confusion.
- Ensuring the MCD applies to new lending only. As currently drafted, the proposal is confusing and could be taken to apply to contract variations, which is not the intention. The FCA should make this explicit.
- The disruptive definition of foreign currency loans. While the CML agrees with the objective of mitigating the risk of currency variation, the proposals apply too widely and the scope should be more narrowly defined.
CML director general Paul Smee observes:
"The Directive provides little if any benefit to UK consumers or the operation of the market. We believe that both the government and the regulator share this view. So, while we naturally recognise the need to comply, we believe that the UK should do so in a pragmatic way that disrupts the existing robust regulatory regime as little as possible."
Notes to editors
1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.1 million mortgages in the UK, with loans worth over £1.3 trillion.
3. The FCA consultation specifically excludes the proposals for implementing the new "consumer buy-to-let" regime that will arise as a result of the Directive (and so the CML response does not address this aspect either). Legislation is expected to be laid on this aspect soon, following which a further FCA consultation on implementing this aspect will take place.