2014 was the year we saw the Mortgage Market Review regulation (MMR) come into force in the UK. It led to vast changes in the way mortgage applicants were considered for a loan.
Now the market is on the verge of another major change. This is due to the European Mortgage Credit Directive, otherwise referred to as MCD. The rules are set to be introduced on 21st September this year. All lenders then have a six-month period in which to take the new rules on board, running until 21st March 2016.
Many people won’t have heard about these new rules issued by the EU. However lenders will be only too familiar with them and with the new requirements they demand. The rules relate to disclosure and documentation and require a second annual percentage rate (APR) to be shown to borrowers. This should be calculated according to the highest rate charged by the lender over the previous 20 years.
Is the second APR a good idea?
In theory, yes. The idea is borrowers can see the APR they will pay at present, and also see the APR that would have been charged at the most expensive point over the past 20 years. By seeing the difference between the two, it will be possible for people to see how much their monthly payments could rise by if interest rates went up again.
However, many lenders question whether a second APR will confuse people. Unlike the Mortgage Market Review these new guidelines have not been as widely-reported. From a customer’s point of view, they may suddenly start seeing two APRs and be confused as to why this is the case.
Indeed, research conducted by the Intermediary Mortgage Lenders Association (IMLA) has revealed nearly three-quarters of brokers (74%) think the new rules could have an impact on lending activity in the UK in the next 12 months. The same research revealed 71% of lenders think the same.
Furthermore, 40% of the brokers who took part in the research believed that bringing in the new MCD rules would be more challenging overall than the Mortgage Market Review changes were. A quarter of those thought it would be significantly more challenging.
So we could see a lesser amount of lending volumes in the near future, as lenders try to get to grips with the latest round of changes to occur in their marketplace. The boss for IMLA, Peter Williams, is concerned that the new regulations might “upset the balance between protection and access for consumers”. It remains to be seen whether this is actually the case.
Certainly the biggest question for the market as a whole will be whether the two APRs that will now be shown will confuse things or make it easier for people to see how much their payments could change if interest rates rose significantly. And perhaps added to that is the question of whether would-be homebuyers would really be too focused on it at all.