How will the European Mortgage Credit Directive affect the UK market?

How will the European Mortgage Credit Directive affect the UK market?

New European Mortgage Credit Directives (MCD) are set to change the UK's lending sector in the year ahead, with many lenders nationwide airing concerns about what it will mean for the market, but what is the reality of the coming change? 

Over the past year and a half, the British market has been somewhat changed already, with the Mortgage Market Review (MMR) having raised concerns before its implementation last April. The UK lending sector reacted well in general to these changes, and although there was an initial dip in approvals, it recovered and has seen months of increases since. 

Some 74 per cent remain worried, however, about what the MCD will mean for them, according to the Intermediary Mortgage Lenders Association (IMLA), with 71 per cent concerned about the adoption period between September this year and next March. 

The changes in the MCD are somewhat different to the MMR that we welcomed in last year. While that particular change saw lenders have to offer more scrutiny when it came to affordability criteria and what they could offer buyers in terms of mortgages, the new changes are in more of a technical area. 

New approaches to disclosure and documentation are the main changes we will see, and as a result, some 40 per cent of lenders believe there will be more challenges to the way they work than were brought about by MMR. However, just 11 per cent believe that these challenges will be significant. 

Among the changes that will be brought about as a result of the MCD will be the arrival of a second APR for the UK market, and the introduction of a Key Facts Illustration document (KFI) with the European Standard Information Sheet (ESIS), which will help to bring the UK market in line with the rest of the continent. 

"The mortgage market has recently undergone a series of major adjustments, and the industry is once more facing a collective challenge to remain open for business while getting to grips with the latest changes to working practices," said Peter Williams, IMLA executive director.

The IMLA remains hopeful that any changes will not have too much of a negative impact on the market for lending across the UK. After all, initial sentiments surrounding the MMR were negative, and yet if anything, it has boosted the sector in the last 17 months, with more lenders able to find a suitable product for lenders in that time. 

"It has been encouraging to see life returning to the market as this year progresses, and sentiment is about as positive as we have seen at any point since the MMR was introduced. The changes may be more of a technical nature this time round, but we must hope that the transition to the MCD rules does not weigh down too heavily on activity in the months ahead," said Mr Williams.