European changes to the Key Facts Illustration document will create “confusion” among borrowers and could prevent them from comparing deals from different lenders, say experts.
The mortgage credit directive comes into force on 21 March 2016 and replaces the KFI in the UK with a new European standardised information sheet.
The FCA has given lenders until 21 March 2019 to introduce the ESIS, but from next March they must include additional “top up” information if they continue to use the KFI. This can be included either within the KFI itself, or as an appendix.
Lenders can begin issuing either the ESIS or an amended version of the KFI from 21 September.
Building Societies Association head of mortgage policy Paul Broadhead says some lenders will move to the ESIS straight away to avoid making changes twice, whereas others will amend the KFI in time for March and switch to the ESIS at a later date.
He says: “For smaller lenders, keeping the KFI as it is and issuing a separate appendix is likely to be the simplest option because it doesn’t require any system changes.
“But new lenders will be able to move to the ESIS more quickly because they do not have legacy systems issues. What lenders do will depend on their IT development plans – if they are upgrading their systems anyway, it makes sense to change the KFI at the same time.”
Broadhead says the varying approaches will be challenging for the intermediary market.
He says: “If a borrower goes direct, they just get one document. But if an intermediary gives a borrower information from three or four different lenders, all in different formats, that will lead to confusion and irritation.”
Money Marketing can reveal lenders already plan to take different approaches.
Barclays says it will incorporate the additional information into the KFI in the first quarter of next year, before replacing the document with the ESIS some time before 2019.
Yorkshire Building Society says it plans to introduce the amended KFI by the end of this year, although it is yet to decide whether the additional information will be included as an appendix or not.
Royal Bank of Scotland is understood to be planning changes for March, while Virgin Money and Coventry Building Society say they plan to use the “KFI plus” initially rather than switching straight to the ESIS.
Other lenders say they are still evaluating their options.
A source close to lenders’ plans says: “Most lenders are in a mess. The software code for their KFIs was typically built a decade ago, and the people who built it will be long gone, meaning any amendments will be challenging.”
Council of Mortgage Lenders communications manager Bernard Clarke says: “There are some major processing and systems issues for lenders to consider and it is up to them to decide what works best for their business and their customers.
“Lenders may issue slightly different documents at different times, but they will still contain information that allows customers to make comparisons.”
But John Charcol senior technical manager Ray Boulger says: “If the purpose of the KFI is to allow consumers to compare different products, clearly having documents in different formats compromises that.”
Boulger says most lenders are likely to use an amended version of the KFI rather than switch straight to the ESIS.
“One of key factors is the timescale,” he says. “The IT work involved in moving to the different format of the ESIS is quite significant, and given the FCA only published the final directive rules in March, lenders may not be confident of getting the ESIS ready for next March.
“The timing of lenders switching to the ESIS will vary. If the Conservatives win the general election and deliver their promise for an EU referendum by 2017, some lenders may wish to wait for the outcome of that before making expensive IT changes.”
The changes will also have a major impact on mortgage sourcing systems, which will need to be able to support the varying documents.
Mortgage Brain chief executive Mark Lofthouse says: “We advocated the shortest possible transition period to minimise confusion, but the FCA opted for the longest transition period.
“We are committed to supporting brokers through this change and our system will be able to support the requirements of the directive, including the production of ESIS and KFI plus documents.”