1. EU Mortgage Credit Directive: A lender’s perspective
For Intermediary Use Only
EU Mortgage Credit Directive: A lender’s perspective
Tony Fullbrook
Policy & Regulatory Manager

2. Today’s Content: What is the Mortgage Credit Directive?
What are the key changes?
How are lenders addressing these changes?
What does this mean for intermediaries?

3. What is the Mortgage Credit Directive?
Europe’s response to the financial crisis
Focused on consumer protection
Traces to Consumer Credit Directive
United UK position on Directive
Implementation 21 March (some transitional elements are later)
Significant overlaps with MMR; which leaves changes still to do

4. Arrears and foreclosure
Advice
Responsible lending
ERCs
Arrears and foreclosure
Best interests
MMR
MCD

5. What are the key changes?

6. Disclosure changes Lenders will provide an ESIS or KFI+
Broadly similar content but different layout
KFI+ includes additional elements; 20 year APRC, Foreign Currency loans
KFI+ valid until March 2019
Must be ESIS for second charge loans
Until full roll out intermediaries will need to be familiar with both ESIS and KFI+ as the approach will vary from lender to lender

7. Disclosure changes ‘Binding’ offers including ‘right of reflection’
Lender is bound by offer for reflection period
Reflection period minimum of seven days
APRC & 20 year APRC
20 year APRC based on highest rates in the last 20 years
Adequate explanations
Service & product disclosure
Explain essential mortgage characteristics
Explain the effects of taking out a loan

8. Foreign Currency Loans Specific Intermediary changes
Additional sales and offer disclosures
Ongoing disclosure requirement
Limiting arrangements
Specific Intermediary changes
Scope of service
Professional Indemnity Insurance
Passporting

9. Knowledge and Competency Changes in scope
Appropriate to role: extended deadline to 2017
Changes in scope
Consumer Buy to Let (CBTL)
Second charge mortgages

10. What is meant by consumer BTL?
A ‘consumer’ means a natural person who is acting for purposes which are outside his trade, business or profession
Excludes lending to Limited companies or SPVs
Consumer BTL is defined by:-
Borrower circumstances
Borrower BTL experience
Borrower intentions

11. Categories of BTL BTL segments fall into three categories:
Regulated Mortgage Contracts “family BTL”
Investment property loans “business BTL”
Consumer BTL “accidental landlords?”

12. Which BTL borrowers become consumers?
Anyone who is NOT entering into an agreement for the purposes of a business carried on, or intended to be carried on, by the borrower
Business BTL is defined as…
A customer who already owns or is looking to buy the property
It would be let out but NOT occupied by themselves or a close relative AND
Since purchase, neither they or a close relative have lived there
OR failing the above:-
If the customer is already a landlord i.e. lets another property (but not to themselves or family)

13. Which BTL borrowers become consumers?
Property purchased for investment purposes will NOT be classed as CBTL
Remortgage COULD be classed as CBTL if:
Not already a landlord (mortgaged or not) AND
property has been occupied by borrower/related persons since purchased
Potential scenarios (not an exhaustive list)
Moving home and letting existing home “Let to Buy”
Property currently let to a related person
Inheritance

14. What changes will BTL borrowers see?
Alternative framework sets standards for lenders and intermediaries
Act honestly/ fairly/ transparently/professionally taking account of rights and interests of consumer
Advisory standards, remuneration, knowledge & competency, tying and bundling
Sales Process and disclosure requirements
Initial disclosure
Information requirements
Illustrations – APRC, foreign currency
Declaration
Adequate explanations including consequences of default
Creditworthiness
Exercise reasonable forbearance; arrears charges reflect costs

15. A Lender response to MCD

16. Lessons Learnt from successful MMR implementation
Early mobilisation and engagement with stakeholders is key
Multiple technology releases
ESIS or KFI+? KFI+
KFI/Offer augmented to cover the additional MCD requirements
Existing Offer document will be used as the Binding Offer with a 10-day Reflection Period
Receipt of COT from solicitor waives reflection period

17. Foreign Currency Loans
Customers with foreign currency income continue via Barclays Wealth channel and systems
Major currencies will be accepted; loans will be in Sterling only
Warning letters will be issued monthly if 20% negative currency swing against borrower, no currency switches

18. Consumer Buy to Let Business as usual Standard process
Additional upfront filtering questions
Enhanced pre-submission declaration
‘KFI’+ illustration and offer with additional disclosures across ALL BTL, not just Consumer BTL
CBTL categorisation set by system
No need for borrower/intermediary to choose status
No differential treatment
Consumer BTL register

19. Timeline MCD has no pipeline provisions
Does not capture cases offered before MCD implementation
Upstream questions for CBTL & Foreign Currency
Offer covering letter information for pipeline cases

20. Finally Implementation – minimise disruption Another regulatory layer
Differences in lender approach
Lenders and intermediaries in partnership

21. Thank you
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