Brokers and lenders are unconvinced tough new rules set to be introduced by Europe as part of the mortgage credit directive will benefit the UK housing market.
The industry is already contending with the requirements of the FCA’s upcoming Mortgage Market Review, due to be introduced in April. Many feel the MMR rules are sufficient to ensure borrowers are only offered mortgages they can afford. But it seems the EU feels there is more to be done.
The mortgage credit directive is the European Parliament’s attempt to align mortgage markets across the EU. It is still to be rubber-stamped, pending an official vote on the final text, though it is not expected to change significantly from the current version.
Much of the directive reflects the MMR, but there are some crucial differences.
These include the move from using existing UK key facts illustrations to a new European standardised information sheet.
Precise Mortgages managing director Alan Cleary does not see the point in introducing new disclosure documents. He says: “We already have a KFI document. What do we need this new Esis for? Just because other countries in European benefit from it does not mean we need it.”
The directive also requires lenders to disclose a worst-case scenario to borrowers who are on fixed rates of less than five years. This involves lenders providing clients with an APR for what they are paying during their fixed term alongside the most they could have been paying on a lender’s standard variable rate over the previous twenty years.
London & Country associate director of communications Hollingworth says: “The thinking behind this ’worst-case’ scenario is clearly to give borrowers an idea of just how rates can move but I am not sure how that really helps the borrower when they are faced with more and more different rates as they look at mortgage deals. What does that really mean to them? I honestly think customers will largely ignore this as it adds more confusion than clarity.”
Mortgage Centre IFA director Fahim Antonaides says: “To me this looks a lot like the EU trying to flex its muscles over the UK, it has always been a bit of an acrimonious relationship. When you boil down all the details of the new directive, I think it comes down to the EU’s jealousy of the UK because we have, so to speak, been doing as we have seen fit for so many years.
“Ultimately this comes down to window dressing really. We will carry on to do business as we are but making a couple of concessions, for example the ESIS replacing the KFI. It’s not a major change and I would be very surprised to see our government allowing anything seismic to take place.”
Not everyone is quite so firmly against the legislation, however, with some parties considerably more understanding about the EU’s desire to create a more standardised market across its member states. There is also a feeling that the lobbying efforts of the industry, the FCA and the Treasury have helped protect elements of the UK market.
Council of Mortgage Lenders communications manager Bernard Clarke says: ”Thanks to the lobbyists, we have in large parts kept much of our regulation the same or in line with what the MMR will bring next year. The new Esis document will be rolled out over a five-year period which gives some adjustment time for borrowers in this country who are used to the KFI sheets. The Esis will include information such as the ”worst-case scenario” which itself I think is being brought in to give borrowers an idea of how rates can change.”
Clarke adds that while the MMR has a defined launch date of 26 April next year, it may be some time before the European directive is introduced, giving the UK market time to prepare and adjust itself towards meeting both regulations.
Cleary takes a more pessimistic view of the possible effects of European regulations playing a greater role in the UK market.
“Domestic regulation that brings all residential property transactions under one regulator is something I am all for but all the stuff from Europe I am exceptionally negative on. We are a well-regulated market and all the European directives are doing is dumbing everything down to the lowest common denominator.”
Cleary believes the new rules will slow down the home-buying process and cost money to implement.
Building Societies Association head of mortgage policy Paul Broadhead agrees and feels with little cross-border lending across the EU, the need for Europe-wide mortgage regulation simply isn’t there.
He says: “There are significant differences in culture, attitude to home ownership and regulation across member states. When the final text of the directive is published, it will look significantly different to the Commission’s original proposal.”
With the final vote in October seemingly a formality, the UK market is bracing itself for the implementation of not one but two pieces of regulation. While the MMR has been well-received in most corners, there is a feeling new European rules will add an extra layer of cost with little benefit to the consumer.