Thursday, 21 October 2021

Understanding...the mortgage credit directive

THE financial services industry has been given another shake-up, as on March 21 the EU-wide mortgage

THE financial services industry has been given another shake-up, as on March 21 the EU-wide mortgage credit directive (MCD) was brought into play.

Brought in by the European Union, the Financial Conduct Authority (FCA) will implement the new rules designed to protect consumers and bring all mortgages under a single market.

“So what?” you may say. Well, it does affect a number of things, so it’s worth looking into.

Luckily for us, Romans, which has its Henley branch in Hart Street, has a breakdown for us.

Who gets affected most?

It mainly impacts the buy-to-let arena, second charge mortgages and the transparency of the entire process when you go for a mortgage.

How will it affect buy-to-let?

Under the new regulations, those who find themselves accidentally becoming landlords, due to inheriting a property or simply being unable to sell their own and deciding to rent it out, will now have to pass new affordability tests — similar to those faced when applying for a residential mortgage.

The tests will see lenders assess both borrowers’ incomes and expenditure in much greater detail to ensure that they can afford any potential rises in costs.

What about second charge mortgages?

Usually taken out by buyers as an alternative to a credit card or other loan, second charge mortgages will now be seen as full “mortgages” and will also be regulated in the same way as buy-to-let and residential mortgages.

Why have they done this?

According to the Council of Mortgage Lenders (CML), there were 1,630,600 buy-to-let mortgage products in existence at the end of 2014, and out of these, a fifth were accounted for by accidental landlords.

As this group of landlords doesn’t make “business” decisions to let their properties out when they buy/inherit them and do it as a result of circumstance, the government feels that these borrowers should still be seen as consumers and need to be covered by an appropriate framework.

It’s also been almost nine years since the financial crisis, and transparency within the industry is as important now as it ever was.

Because of this, mortgage firms will now be required to provide customers with thorough explanations of the feature of the products they are offering, giving customers a European Standardised Information Sheet (ESIS) alongside.

The mortgage credit directive will affect second charge and buy-to-let mortgages taken out after March 21, and lenders will now be expected to carry out detailed affordability assessments regardless of what type of mortgage consumers are going for.

Still confused? It may be a good idea to discuss your mortgage and any changes you may be considering with a professional mortgage adviser.

Many of Henley’s local agents can help you find one, including Romans Mortgage Services on 0118 321 9536.

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