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What’s the Mortgage Credit Directive and how does it affect me?
You may have heard the term ‘Mortgage Credit Directive’ (MCD) in the news recently and been wondering what it is. More importantly, if you have a mortgage or you’re thinking of getting one, how will the MCD affect you?
What is it?
From March 21st, mortgage, remortage and secured loan lenders and brokers will need to bring their selling practices in-line with European Union regulations, which have been implemented in the UK by the FCA (Financial Conduct Authority). The changes are designed to provide more protection for you the borrower, and also to ensure all lenders are operating under the same rules.
Following the 2008 financial crisis the UK implemented tougher rules for mortgages when the Mortgage Market Review (MMR) recommendations came into effect in 2015 and, because of this, it’s unlikely that the MCD will have as much of an impact. The MMR meant that strict rules to make sure mortgage providers offer borrowers the products that are most suited to their needs and circumstances were established.
As we mentioned, the main changes introduced by the MCD are practices that many lenders already follow – so you might not even notice a change.
For example, if you’re offered a mortgage you will now be given a reflection period of seven days during which the lender is not allowed to contact you, so that you can compare deals and work out which is the most suitable for you without feeling under pressure. However, many lenders and brokers – including Ocean – already give borrowers this time.
Another new rule is that once the lender has made you an offer, it must be binding for the duration of the reflection period – they can’t simply withdraw it while you’re in the process of comparing deals. But again, this is a practice that many lenders have followed since the MMR anyway.
Will it affect anything other than mortgages?
Yes. As well as these best practices being followed by lenders when they make a mortgage offer, they will also be in place during the second charge mortgage process. You may also know second charge mortgages as secured loans.
It makes good sense to regulate secured loans in exactly the same way as mortgages because this borrowing option should be thought of more as a mortgage than a loan. Although borrowers are unlikely to be spending the money they raise from a secured loan on buying a property, the consequences they face if they don’t keep on top of their repayments are the same as if they stop paying their mortgage. Simply put, you could lose your home.
As the name suggests, a secured loan is secured to your property so if you default your lenders can repossess your home in order to get their money back – although this is a last resort. That’s why it’s important to think of it like a mortgage and prioritise your payments towards it in the same way.
To find out more about secured loans, click here.