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The Mortgage Credit Directive – should borrowers be worried?

12.02.2016

The Mortgage Credit Directive will be implemented in the UK on 21 March but is it something consumers need to be worried about? Not necessarily but it is something consumers need to be aware of as there are some quirks that could catch people out when they are applying for a mortgage.

Borrowers are only just coming to grips with more stringent criteria as a result of the Mortgage Market Review so further hoops to jump through will be unwelcome. Getting a mortgage may become more tricky but will not necessarily be impossible and it’s more important than ever to seek independent advice from an independent mortgage broker such as Anderson Harris.

Under the new rules, accidental landlords, who rent out a property they used to live in, will be classed as a consumer buy-to-let customer and will have to go through similar application and affordability tests as with a residential mortgage. Unlike professional landlords who operate a buy-to-let portfolio as a business, accidental landlords are considered to need consumer protection. There has been a surge in people taking out let-to-buy mortgages ahead of the implementation of the MCD to avoid this tougher criteria. This coming on the back of the hike in stamp duty for landlords from April, the reduction in mortgage interest tax relief and the abolition of wear and tear allowance, is a further blow to the sector.

A significant number of lenders have said they will not offer foreign currency mortgages after the introduction of the MCD because it is a niche area and the cost of changing their systems and procedures to deal with the new regulations would not be cost-effective. There will be less choice for those requiring foreign currency mortgages but several lenders will continue to offer them so there will still be some options.

The second charge market is also being brought into line with residential mainstream mortgages, which is good news as it may be a better choice for the borrower than remortgaging.

Most lenders are already MCD-compliant so borrowers shouldn’t notice a considerable change post-March. However, anyone seeking a mortgage should take independent advice to guide them through the new rules and regulations.

Adrian Anderson
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Adrian Anderson
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