This factsheet provides information on the new regulations, the changes Furness Building Society will be making and how this will affect you and our clients.
The European Union Mortgage Credit Directive (MCD) comes into force on 21 March 2016 and introduces an EU-wide framework of conduct rules for mortgage firms. It is closely aligned with the UK’s existing mortgage regulation.
Under MCD, there are certain things you will need to explain to your clients. It is similar to what you currently do. This includes pre-contractual information, including disclosure documents and the Mortgage Illustration, also known as the Key Facts Illustration (KFI).
You will need to explain:
• The details of the mortgage product
• The consequences of defaulting
• Where products are bundled with the loan, whether each component can be terminated separately and the consequences of terminating each component.
As an intermediary, you must confirm that you have disclosed the following information if appropriate
• That you have informed your client if you have limited the products you have considered
• That you have used the term ‘independent’ only when there are no limitations to the lenders and product types you considered
• That you have informed the client of alternative finance options in situations where the client is considering increasing the amount of secured borrowing
• That you have supplied the client with a list of providers you are using when offering products from a limited range
• That you have disclosed to the client if you receive any commission such as procuration fees, from one or more lenders, and that you have provided, on request, information about the commission you are paid.
The standard KFI will be replaced with the European Standards Information Sheet (ESIS). All lenders are allowed to take a phased approach to implementation of the Mortgage Illustration, with the option to use an enhanced version of the current KFI (sometimes referred to as a KFI Plus) until March 2019.
The information in the enhanced KFI will be similar to the standard KFI but will also include two Annual Percentage Rates (APRs). The first APR is based on the current interest rate, plus reversionary rate, unless the product is fixed for the duration of the loan; the second is based on the highest borrowing rate over the previous 20 years.
The Furness has been issuing an enhanced KFI from the 15 February 2016.
A Foreign Currency Loan is defined as a loan that is in a currency other than that of the customer’s income or in a currency that differs from the currency in the country where the customer is resident. This will include customers who would rely on any non-sterling income or asset to repay the mortgage (either monthly or capital).
We have chosen not to offer Foreign Currency Loans at this time, this will be reviewed at a later date and any changes communicated.
Points to note:
• Foreign Currency Loan status only applies at the time the contract is entered into
• Post-Contract variations, such as rate switches and term extensions that do not result in a new contract, will be available to customers with Foreign Currency Loan characteristics
• We cannot lend for porting, additional borrowing or change in ownership (transfer subject to mortgage) if your client subsequently falls within the definition of a Foreign Currency Loan.
All lenders will be required to make a binding offer in relation to a mortgage.
We will make binding offers to customers with the 7 day reflection period (see below).
The Mortgage Credit Directive imposes a requirement for borrowers to be given a 7 day period to reflect on their mortgage offer.
All offers will have a reflection period of 7 days which starts from the date the customer receives our offer. If the Society receives a request from the solicitor to release the funds during this period we will accept this as waiver of the reflection period.
As part of the new regulations, some clients will be categorised as Consumer Buy to Let (CBTL). CBTL will apply to ‘accidental landlords’. Examples may include:
• Let to Buy customers
• A customer who has lived in the subject property and now wishes to let it out as they are now working away
• A customer who inherits a parental property and wishes to let it out
Lenders and brokers wishing to take part in CBTL lending will need to apply for permission from the FCA.
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