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Monday 21st March 2016 marked the deadline for the implementation of the European Mortgage Credit Derivative (EMCD). Similar to the Mortgage Market Review (MMR), the MCD is a new set of rules that will apply to all mortgage businesses within the EU. The rules will equally apply to both first and second charge mortgages that typically require a first property as security for any additional loan. The primary aim of the MCD is to provide a single, standardised market for mortgage transactions within the EU. The new regulations are designed to enhance and improve the changes already put in place by the MMR.
The majority of lenders remain unconvinced of the MCD’s ability to meet these objectives as the new rules do not provide a suitable framework for analysing and understanding credit risk in complicated foreign markets. In addition to and aside from the considerable costs associated with implementation, the fact that consumers will continue to gravitate towards familiar brands and products has also badly affected lender confidence in the new regulation.
Whilst the regulator has already taken significant steps to help lenders adapt to the latest requirements, the Council of Mortgage Lenders (CML) has stated that implementing the MCD offers little or no specific additional benefit for consumers over and above the UK’s existing regulatory framework.
Therefore, in terms of the more long term effects of the new FCA guidelines, the most prominent outcome of the MCD will be that some buy-to-let mortgages will now become regulated. However, the regulator has stated that this will not be the case for the majority of buy to let mortgages which will be secured on behalf of businesses or professional landlords and therefore this will also have a limited impact on the market as a whole.
With regards to the other implications of the new rules, there will now be a standardised set of disclosure information related to customers across the EU and the requirements relating to foreign currency loans will also be affected.
In addition to these outcomes, The MCD also introduces a ‘cooling off’ period of seven days to give the consumer time to consider and reflect upon their mortgage options which is likely to cause delays in the conveyancing process as the MCD requires the loan agreement to be binding during this period.
Consumers can therefore expect to experience delays in their applications in much the same way as MMR impacted on the market last year. Whilst the majority of lenders now have their systems and processes already in place, it is highly likely that completed transaction levels and gross lending will be down in Q2-3 this year whilst the market adjusts to these new restrictions.