Last reviewed: 6 October 2016
At a glance
- The Mortgage Credit Directive (MCD) is European legislation designed to foster a single market for mortgages and to protect consumers. The European Commission published the final MCD text in February 2014.
- MCD was implemented in the UK through rules set by the Financial Conduct Authority (FCA). The requirements took effect from 21 March 2016.
- We believe implementing the MCD offers little or no specific additional benefit for consumers over and above the UK’s existing regulatory framework.
- The main changes to mortgage lending resulting from the MCD are:
- some buy-to-let mortgages will become regulated by the FCA.
- there will be a phased move to a Europe-wide standardised set of disclosure information to customers, via a European Standardised Information Sheet (ESIS).
- the requirements that relate to foreign currency loans will change.
- lenders' sales processes and documentation will need to be reviewed for compliance.
- The introduction of the MCD has two main implications from a conveyancing perspective:
- The MCD introduces a reflection period of at least seven days, which is to give the consumer time to compare offers and assess their implications. The reflection period will need to be incorporated into the conveyancing process.
- The MCD requires the credit agreement to be “binding” for this period.
We believe the FCA has made helpful changes to its rules following its MCD consultation.
We broadly welcome the UK government’s decision to include a provision for pipeline cases in the legislation, as this has the potential to smooth implementation of MCD.
We continue to work with members and the FCA to minimise disruption to consumers as a result of implementing the MCD in the UK.
Why this is important for lenders
The MCD took effect from 21 March 2016, and lenders were required to make substantial systems and process changes across a wide number of areas to comply with the MCD requirements. The sales process has changed, as have the disclosure documents which lenders are obliged to give to consumers.
The MCD also makes specific requirements for buy-to-let (BTL) mortgages. Member states must introduce either the MCD requirements or an “appropriate national framework”. The UK government has chosen the latter course of action.