The financial services industry has been given another shake-up, as the EU-wide Mortgage Credit Directive (MCD) is brought into play in March 2016.
Brought in by the European Union, the Financial Conduct Authority (FCA) will implement the new rules designed to protect consumers and bring all mortgages under a single market.
So, what does it affect?
It affects a number of things but it mainly impacts the buy-to-let arena, second charge mortgages and the transparency of the entire process when you go for a mortgage.
How will it affect buy-to-let?
Under the new regulations, those who find themselves “accidentally” becoming landlords, due to inheriting a property or simply being unable to sell their own and deciding to rent it out, will now have to pass new affordability tests – similar to those faced when applying for a residential mortgage.
The tests will see lenders assess both borrowers’ incomes and expenditure in much greater detail to ensure that they can afford any potential rises in costs.
What about second charge mortgages?
Usually taken out by buyers as an alternative to a credit card or other loan, second charge mortgages will now be seen as full ‘mortgages’ and will also be regulated in the same way as buy-to-let and residential mortgages.
Why have they done this?
According to the Council of Mortgage Lenders (CML), there were 1,630,600 buy-to-let mortgage products in existence at the end of 2014, and out of these, a fifth were accounted for by accidental landlords.
As this group of landlords doesn’t make ‘business’ decisions to let their properties out when they buy/inherit them and do it as a result of circumstance, the government feels that these borrowers should still be seen as consumers and need to be covered by an “appropriate framework”.
It’s also been almost nine years since the financial crisis, and transparency within the industry is as important now as it ever was.
Because of this, mortgage firms will now be required to provide customers with thorough explanations of the products’ features that they are offering, giving customers a European Standardised Information Sheet (ESIS) alongside.
The Mortgage Credit Directive will affect second charge and buy-to-let mortgages taken out before the 21 March, and lenders will now be expected to carry out detailed affordability assessments regardless of what type of mortgage consumers are going for.
With this being yet another change to the mortgage industry, it is important that you discuss your mortgage requirements and changes you are considering with a professional mortgage adviser. Call us today to speak with one of our advisers on 0161 925 3255.
Mortgage Advice Bureau