EU Mortgage Credit Directive


The Mortgage Credit Directive (MCD) introduces an EU-wide framework of conduct rules for mortgage activities. It creates minimum regulatory requirements that all member states must comply with to provide consistency in protecting consumers taking out credit agreements for residential property.

Our changes for the EU MCD have been implemented from Monday 7 March 2016. This page will provide you with a summary of how The Mortgage Works intend to meet these new requirements ahead of 21 March 2016.

Full details of the new legislation can be found on the Financial Conduct Authority (FCA) website.


Consumer Buy to Let

For the Buy to Let (BTL) market, EU MCD will result in the creation of a new Consumer BTL regulatory status.

For The Mortgage Works, the new Consumer BTL regulatory status will apply to:

    “A borrower with no other let properties wishing to obtain a mortgage on a property that has either been inherited or has previously been occupied by the borrower or related person at any time”

This means the new status will apply to the following application types:

  • Where the borrower or a family member has previously lived in the property, typically Let to Buy
  • Inherited properties

If the borrower lets any other property at the time of the application, they won’t be classed as a ‘consumer’, even if the points above apply. This regulatory determination will only apply to remortgage applications.

Following our implementation of EU MCD, when completing an application, unaffected borrowers will be asked to sign a declaration, confirming that they’re aware their mortgage will remain unregulated.

We'll identify a Consumer BTL application by asking you some additional questions in the application process. You must ensure these questions are answered accurately to ensure that the correct regulatory status is applied.

Registration

To submit a Consumer BTL application to The Mortgage Works, intermediary firms must be signed up to the FCA’s new Consumer Buy to Let Register, which can be accessed via the FCA Website. For firms with existing FCA permissions, this process will be fast and relatively inexpensive.

We won’t be able to proceed with Consumer BTL applications received from firms who aren’t on this register, so we’d strongly encourage any intermediary firms to sign up.

Mortgage Illustration (KFI) Changes

As part of MCD, there will be changes to the ‘Overall cost of this mortgage’ section within the Mortgage Illustration. Lenders are required to use a new APRC (Annual Percentage Rate of Charge) in place of the existing APR calculation, as well as an additional APRC figure.

TMW will continue to issue a Mortgage Illustration document in the same way, and will include the additional MCD disclosures in the relevant sections, rather than in a separate document.

To ensure consistency of service for your clients, we'll be implementing the changes required for Consumer BTL across all of our new mortgage business.

Foreign Currency Loans

EU MCD will introduce changes to the way Foreign Currency Loans are defined, processed and managed.

TMW won't support foreign currency lending to new borrowers, including where the income derived from the property is paid to the borrower in a foreign currency.

Pipeline

For cases that have been submitted but not offered prior to our implementation of EU MCD, it won't be necessary for you to produce a new KFI for your client. Where required we'll include the necessary additional documentation with your client’s mortgage offer. This will contain details of all the changes introduced as a result of the EU MCD.

To enable us to determine the correct regulatory status for applications in the pipeline at the point of our implementation of EU MCD, it may be necessary to request some additional information about your client’s application. We've been requesting this information on some applications since December 2015 and this will continue until our implementation date. This request for additional information is managed as part of our underwriting process.

We'll update you with more information on our pipeline process closer to our implementation of the EU MCD.

Frequently Asked Questions

How will I know if my client’s application will be a Consumer Buy to Let (CBTL) loan?

TMW’s definition of a CBTL borrower is “A borrower with no other let properties wishing to obtain a mortgage on a property that has either been inherited or has previously been occupied by the borrower or related person at any time”. TMW Online will identify whether the application is a CBTL loan through the questions you are asked during the application process.

If my clients’ application is for joint borrowers, but only one borrower meets the definition of a CBTL borrower, how will the loan be classed?

If either of the applicants are identified as a consumer using the definition above, then it will be classed as a CBTL loan.

Will there be a specific product range for Consumer BTL loans?

No, our standard range of Buy to Let products will apply.

What permissions will be required to submit mortgage business to TMW after the EU MCD changes have been implemented?

The following FCA permissions are required to submit applications to TMW:

  • Advising on regulated mortgage contracts
  • Agreeing to carry on a regulated activity
  • Arranging (bringing about) regulated mortgage contacts
  • Debt counselling (if you are submitting an application involving Debt Consolidation and Additional Borrowing)
  • To submit Consumer Buy to Let applications, you’ll need to sign up to the FCA’s new CBTL register.

Further Questions

If you have any questions on the EU Mortgage Credit Directive, please contact your Business Development Manager.

For information on Nationwide’s approach to the EU MCD, please visit the NFI website