He explains: “In regards to the MCD, lenders offering a mortgage that a borrower can repay in a foreign currency have new requirements under the directive.
“They will have to monitor the rate of exchange between the currency in which borrowers pay their mortgage, and that in which they receive their income.
“They will also have to warn customers about their level of exposure, and if the two currencies fluctuate beyond a certain limit, the lender would have to offer the borrower the option of switching currency.”
The CML has produced a policy update on its website which outlines more information on how the MCD will affect cross-border borrowers.
In a nutshell, the CML outlined the effects of MCD as:
- Some buy-to-let mortgages will become regulated by the FCA.
- There will be a phased move to a Europe-wide standardised set of disclosure information to customers, via a European Standardised Information Sheet (ESIS).
- The requirements that relate to foreign currency loans will change.
- Lenders' sales processes and documentation will need to be reviewed for compliance.
Positive effects
For Nigel Green, chief executive of the deVere Group, some elements of MCD have been positive.
He states: "For clients, a positive effect of MCD is centered around protecting their welfare. MCD has aligned EEA member states' regulations and standards and by ensuring lenders exercise consistent client practices."
He admits this may have increased regulatory costs on firms, but claims the stringent anti-money laundering checks are in place and lenders are monitoring client affordability more closely is "surely a good thing".
Careful consideration
But how much do mortgage brokers need to abide by the MCD? In the case of UK residents, Mr Howarth comments: “There is still a lot of room for interpretation given it is a directive and not a regulation, and the FCA still has to make an official confirmation on how it will be interpreted by them.”
Mr Sampson adds: “The consistency of minimum harmonisation that applied to many Directives similarly applies to MCD, such that certain lending is wholly exempt, irrespective of jurisdiction, and countries other than the UK selecting alternative-tough regulation to supplement or dampen.”
For now, it is best to abide by both the spirit and the letter of the law – both in Europe and in the UK.
simoney.kyriakou@ft.com
