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Brokers fear new EU rules will hit mortgage lending

The large majority of brokers and lenders fear that new EU regulations may hit UK mortgage lending.

New research shows that 74% of brokers and 71% of lenders worry that the forthcoming European Mortgage Credit Directive (MCD) may impact lending activity over the next year.

Brokers and lenders also see little benefit to the UK market from the EU's changes, such as plans to introduce a ‘second APR’ or new documentation.


The research, by the Intermediary Mortgage Lenders Association (IMLA), also shows that standard borrowers and first-time buyers have seen improving access to products as industry adjusts to the Mortgage Market Review (MMR).

But almost three quarters of mortgage brokers (74%) are worried about the impact of the incoming European Mortgage Credit Directive (MCD) on overall lending activity over the next year.

IMLA’s latest Intermediary Lending Outlook research shows a similar number of lenders are sceptical.

The industry has a six-month window to adopt the new rules, starting on 21 September and running to 21 March 2016.

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.

Nevertheless, 40% of brokers believe a smooth implementation of the MCD will be more challenging for the industry as a whole than MMR, including 11% who believe it will be significantly more challenging.

And 71% of lenders believe it will be at least as challenging for industry to implement MCD, although 28% feel it will be less challenging.

Few expect MCD changes to benefit the UK mortgage market.

The UK government has openly questioned the benefits of MCD to UK consumers beyond the high level of protection offered by the existing FCA regime, and its approach to the negotiation and implementation of the MCD has been to minimise the impact on the UK market as far as possible.

Just 5% of brokers felt the introduction of a second APR will benefit the UK mortgage market, while 70% disagreed – as did 86% of lenders.

Similarly, just 9% of brokers feel that replacing the Key Facts Illustration document (KFI) with the European Standard Information Sheet (ESIS) is a beneficial move while 68% disagree.

Lenders were again stronger in their opposition with 86% disagreeing that the switch from KFI to ESIS will benefit the market.

Peter Williams, executive director of IMLA, said: “The mortgage industry is once more facing a collective challenge to remain open for business while getting to grips with the latest changes to working practices.

“It has been encouraging to see life returning to the market as this year progresses, and sentiment is about as positive as we have seen at any point since the MMR was introduced. The changes may be more of a technical nature this time round, but we must hope that the transition to the MCD rules does not weigh down too heavily on activity in the months ahead.

“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.”


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