The European Mortgage Credit Directive was likely to depress lending activity, according to 74 per cent of mortgage brokers surveyed by the Intermediary Mortgage Lenders Association (IMLA).
A similarly high proportion of lenders – 71 per cent – held the same concerns about the rules. They will come into force in March following a six month window, starting this month, to adopt the new framework.
The rules will be at least as challenging for the industry to implement as the Mortgage Market Review, which was implemented in April 2014, 71 per cent of lenders said.
Only a slim minority of mortgage lenders and brokers believe the new rules will benefit the mortgage market.
“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,” said IMLA boss Peter Williams.
WHAT IS THE EUROPEAN MORTGAGE CREDIT DIRECTIVE?
• The UK is required to implement the European Mortgage Credit Directive (MCD) requirements by 21 March 2016, in order to meet its Treaty obligations. It introduces an EU-wide framework of conduct rules for mortgage firms.
• 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.
• The rules require lenders to display an extra annual percentage rate (APR) which is calculated using the highest borrowing rate that the lender has charged over the previous two decades.
• The MCD is designed to alert borrowers to the risk that interest rates could rise to make sure they know what to expect and are not surprised by a jump in their monthly mortgage repayments.
• MCD has been criticised by the mortgage industry, which says that a second APR is as likely to perplex borrowers as it is to help them.
• Firms will also need to overhaul their information systems as the MCD introduces new EU-wide standardisations.