Mortgage Credit Directive
Leeds Building Society Frequently Asked Questions for Mortgage Credit Directive (MCD)
What is the Mortgage Credit Directive (MCD)?
MCD introduces a framework of conduct rules for mortgage firms across the European Union and aims to standardise the way in which borrowers access mortgages across Europe. The UK interpretation builds on the existing rules in the UK mortgage market that are in place to protect customers.
When does it come into force?
The UK is required to implement the MCD requirements by 21st March 2016. Phased implementation was for some elements, however, permitted from 21st September 2015.
What are the main changes introduced by MCD?
The main changes are:
- A requirement to provide a binding offer and a seven (7) day reflection period when providing the offer;
- A requirement to provide an adequate explanation of a product’s essential features;
- New disclosure requirements (KFI+ or ESIS);
- Introduction of a new purchase type called Consumer Buy to Let (CBTL);
- Modified financial promotions rules;
- Increased protection for foreign currency loans;
- A new APR calculation (APRC); and
- The inclusion of a risk based APRC based on the highest applicable mortgage rate within the past 20 years.
When are Leeds Building Society intending to introduce changes to MCD?
Leeds Building Society implemented the system changes required for MCD on 21st December. This included an updated KFI document (KFI +), a set of new questions to determine if a customer is a Consumer Buy to Let and the introduction of an adequate explanations letter.
What are Leeds Building Society changing for binding offers and a seven day (7) reflection period?
In respect of binding offers there will be no change to Leeds Building Society’s existing practice. The new rules provide customers entering into an MCD mortgage contract with a 7 day reflection period, starting from the offer being received, which allows the customer to cancel the mortgage application. Early submission of the Offer Acceptance Form will be the customer’s confirmation that they waive their rights to the seven (7) day reflection period.
What is Consumer Buy to Let (CBTL)?
A CBTL mortgage is a BTL mortgage contract which is not wholly or predominately entered into for business purposes carried on (or intended to be carried on) by the borrower. LBS uses a series of questions in a ‘decision tree’ to determine if an application is a CBTL mortgage.
Is Leeds Building Society intending to apply any different rules to “normal” business Buy to Lets?
Leeds Building Society will continue to operate “normal” business Buy to Lets as per current practice. There is no difference to how a business buy to let and Consumer Buy to Let loan is underwritten.
FCA Registration process
Leeds Building Society encourages intermediaries to be registered with the FCA for CBTL permissions as this will be required to progress a CBLT case with Leeds Building Society.
What will happen to pipeline cases?
The system changes were introduced on 21st December 2015 therefore any new applications made post this point are MCD compliant.
Changes were made pre December to the offer document, initial disclosure document and sales process to help to cover the requirements for customers who could be in the application process for up to six (6) months. Return of the signed Offer Acceptance Form (OAF) creates an agreement to grant credit therefore any signed OAF returned before 1st March 2016 will be protected from the MCD rules.
Post 1st March, any customers who have applied for a mortgage before the system changes have been implemented, will require additional information depending on the circumstances. These customers will fall into one of the following two categories:
- require a mailing providing them with additional information required under MCD rules such as the APRC and adequate explanations and an updated KFI; or
- require a mailing as noted above and a reoffer.
This mailing will be sent out early March and is designed to minimise customer inconvenience as the alternative is to reapply for the mortgage.
Does Leeds Building Society offer foreign currency loans?
Leeds Building Society does not offer these types of loans.
What are the modified Financial Promotion rules?
There are a number of new requirements including the need to provide a full representative example of the mortgage cost if advertising an interest rate or anything to do with the cost of a loan (such as the monthly amount).
Any queries regarding the above contact:
Please contact your local BDM. Details of your BDM can be found on our contact us page.