UK lenders and brokers concerned about new European mortgage directive

Almost three quarters of mortgage brokers in the UK, some 74%, are worried about the impact of the incoming European Mortgage Credit Directive (MCD) on overall lending activity over the next year.

A similar number of lenders, 71%, take the same view as MCD implementation approaches, with a six month window from 21st September to 21st March to adopt the new rules, according to new research from the Intermediary Mortgage Lenders Association (IMLA).

Unlike last year’s Mortgage Market Review (MMR), many of the MCD changes are of a technical nature involving new approaches to disclosure and documentation rather than major changes to advice, affordability criteria or lending decisions for residential mortgage borrowers.

Nevertheless, 40% of brokers believe a smooth implementation of the MCD will be more challenging for the industry as a whole than MMR, including 11% who believe it will be significantly more challenging.

The majority of lenders, 71%, believe it will be at least as challenging for industry to implement MCD and this includes 21% who believe it is more of a challenge, although 28% feel it will be less challenging.

The UK government has openly questioned the benefits of MCD to UK consumers beyond the high level of protection offered by the existing FCA regime, and its approach to the negotiation and implementation of the MCD has been to minimise the impact on the UK market as far as possible.

And the IMLA research also shows industry remains sceptical about a number of incoming changes in the lead up to implementing the MCD. Just 5% of brokers felt the introduction of a second APR will benefit the UK mortgage market, while 70% disagreed, as did 86% of lenders.

Similarly, just 9% of brokers feel that replacing the Key Facts Illustration document (KFI) with the European Standard Information Sheet (ESIS) is a beneficial move while 68% disagree. Lenders were again stronger in their opposition with 86% disagreeing that the switch from KFI to ESIS will benefit the market.

The research also shows that broker sentiment about market conditions at the midway point of 2015 was broadly consistent with the start of the year, with 50% feeling conditions are improving, compared with 51% in January. This is slightly improved from July 2014 when 46% felt the same.

The report notes that 67% of lenders feel conditions are currently improving, up from 53% at the turn of the year and just 44% last summer.

IMLA’s research suggests ‘standard’ borrowers and first time buyers have both benefitted from improving access to mortgage finance as the market has adjusted to the MMR requirements.

During the first half of 2014 some 34% of brokers had been unable to find a suitable product for at least one standard borrower, but just 25% have reported the same in the first half of 2015. Similarly, 28% had been unable to help at least one first time buyer enquiry in the first six months of last year, but just 20% had this problem between January and June 2015.

However, 85% of lenders are concerned that consumer access to mortgage finance has unduly suffered from actions by the Financial Policy Committee (FPC) to cool the housing market in the second half of 2014. The majority, 76%, of brokers echo this view.

‘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.

‘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,’ he explained.

‘Every new layer of regulation brings a danger that it will upset the balance between protection and access for consumers with legitimate cases to be granted a mortgage, as well as imposing extra costs and reducing efficiency,’ he added.

‘The Governor of the Bank of England recently highlighted the scheduled open forum in November when it is planned to look at the impact of the reform agenda in financial markets. It would be helpful if the mortgage market was part of this to ensure we can move forward on a stable footing,’ he concluded.