SPECIAL FEATURE: Countdown to European Mortgage Credit Directive
There have been many challenging regulatory changes for brokers and lenders of late, with the Mortgage Market Review (MMR) shaking up the mortgage market and the transition of Consumer Credit regulation from the OFT (Office of Fair Trading) to the much tougher FCA (Financial Conduct Authority) regime. Last month marked the one year countdown to another industry shake-up, the introduction of the European Mortgage Credit Directive (EMCD).
The EMCD was announced in 2014 as a Europe-wide regulatory framework to protect consumers taking out credit agreements relating to immovable residential property. EU member states are required by law to adopt the new guidelines by 21 March 2016. However there are a number of transitional provisions and firms should consider how they can benefit from these.
The EMCD applies to first and second charge mortgages. Its aim is to ensure that all consumers who purchase a property, or who take out a loan secured against their home, are adequately informed and protected against the risks.
With the new regulations on the horizon, it is time for brokers and lenders alike to fully understand the implications and intensify their preparations to take on the new era of compliance.
Traditionally, there has been reluctance from many brokers to look at secured lending as a viable alternative to re-mortgage products. Intermediaries have cited a number of reasons, from nervousness around the compliance implications of secured lending products, right up to a lack of understanding of secured lending altogether. However, now that all forms of secured lending come under the same FCA umbrella, for brokers to call themselves ‘independent’ they will need to consider second charge mortgages as well as firsts.
When the EMCD is taken into consideration, the affordability requirements and restrictions now in place on new mortgages make it all the more beneficial for brokers to consider all of the options and find a loan that is most closely targeted to the customer’s individual circumstances. This is just good hygiene for brokers. By giving the secured lending sector an additional layer of oversight, it is sending a very clear message to brokers that, in many cases, the appropriate outcome for a customer may well be a secured loan.
Another stamp on loans credibility
The changes will give even greater credibility to second charge loan products. Increased scrutiny from regulators may encourage more competitive and innovative products, that are more attractive for consumers and providing an incentive for mortgage brokers to consider second charges alongside first charge products when identifying the best possible solution for their clients.
Secured lending has already shown strong results. Recent figures from the Secured Loan Index showed that the second charge sector is already up and just two months into 2015 the total amount lent in the first quarter of 2013 was surpassed and, in fact, the gross lending figures for January and February 2015 were 18% higher than Q1 of 2013.
Clearly more and more brokers are considering secured lending and by bringing regulation of the secured loan sector under the auspices of the FCA, MMR and EMCD, it is clear that the regulators are successfully creating a ‘one mortgage market.’
Prepare for the changes ahead
In order to ensure compliance and mitigate any difficult transitions, brokers should look to providers who are prepared. Specialist loan brokers have already progressed leaps and bounds towards compliance with the EMCD rules, not only in terms of their processes, but also by building close relationships with lenders and providing extensive training for their staff.
Second charge lenders and brokers have been able to apply for mortgage permissions from this month so, with less than one year to go, now is the time for brokers and lenders to familiarise themselves with secured loans and the compliance and regulation around these options.
As the EMCD steadily becomes implemented, the second-charge market will continue to develop and blend even further into the mainstream mortgage market. Brokers who consider second charge mortgages will ultimately be making the most informed choice to benefit both their business and most importantly, their customer.