Alistair Ewing of The Lending Channel gives his thoughts on the new MCD legislation.
The European Mortgage Credit Directive (MCD) was officially implemented last Monday (21st March) and while it is still far too early to gauge how this new piece of legislation will affect the wider mortgage market, the far reaching changes to the Second Charge mortgage market is likely to have a massive impact on this niche sector. There are many different reasons as to why a client would opt to use a Second Charge to raise capital instead of the traditional remortgage or further advance route. These might typically be loans for: business use, tax bills, debt consolidation or protecting a good deal on the current mortgage.
The new legislation sees the regulation shift from the Office of Fair Trading across to the Financial Conduct Authority (FCA) and brings the rules exactly into line with First Mortgages. One of the biggest changes to affect the consumer is the introduction of ‘stress testing’ affordability, which although this is designed to ensure that clients can still afford their loans should rates rise, will likely lead to a decline in loan volumes as a higher proportion of clients may find their loans being turned down.
The general feeling amongst the broker and lender community is that while MCD may see some clients being turned away, overall lending volumes should gradually begin to increase. Better products, low rates, reduced fees, more transparent rules and the products now being regulated by the FCA should lead to much more engagement by mortgage professionals when trying to identify appropriate lending solutions for their clients.