Mortgage Credit Directive to impact secured loans

Mortgage Credit Directive to impact secured loans

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Video transcript

Consumers and brokers alike need to be prepared for the changes surrounding secured loans that are to be introduced as part of the new European Mortgage Credit Directive.

Coming into force from March 2016, the new legislation will introduce a range of additional measures that will affect consumers across the UK and the whole of the EU.

Aimed at significantly improving customer protection, the Mortgage Credit Directive will be applicable to first and second-charge mortgages secured against an individual`s assets and will be implemented from March 22nd 2016.

The key areas in which the directive will impact secured loan borrowers across the UK include in the provision of a minimum standard of advice that all brokers will be legally required to deliver.

In addition, anyone taking out a secured loan will be subject to new affordability tests to ensure they are not placing their finances under undue strain and have a greater the ability to make repayments over the lifetime of the loan. 

It seems that consumers may also be given access to new a system of cross border redress, ensuring individuals that take out loans with any broker across the EU will be given the same levels of protection.

Brokers themselves will also face a series of new requirements aimed at bolstering customer safeguards and improving the reputation of the profession in general among the public.

All lenders will be required by law to train their staff to have the knowledge and understanding to be able to give effective and appropriate recommendations for all customers they deal with.

Meanwhile, lenders will also be tasked with putting in place additional consumer safeguards where loans are in a foreign currency, to protect the customer against exchange rate risk.

Changes to the way that loans are illustrated to clients by secured loan lenders will also be implemented as part of the new directive, with lenders being asked to provide a new `European standard information sheet` for each of the products offered to enable consumers to shop around.

This will replace the existing `Key Facts Illustration` that applies to firms in the UK. Lenders will, however, be able to continue producing KFI documents as a KFI plus as part of their overall service until March 2019, when they will be fully phased out.

Overall, advertising of products under the new directive must be deemed to be both fair, clear and not misleading. 

Homeowner Secured Loans
9.8% APRC. Representative example: Borrow £50,000 over 180 months. 60 months at 8.1%, £497.83 pcm fixed at 60% LTV. Then 120 months at 10.1%, £539.89 pcm variable. Total payable £94,656.60. Total cost of credit £44,656.60 (including: £795 lender fee, £985 broker fee & £42,876.60 interest). First Choice are tied to certain loan providers.

Mortgages & Remortgages
8.4% APRC.
Representative Example: Borrow £120,000 over 25 years at 5.99%, £778.86 pcm fixed for 3 years at 60% LTV. Then at 8.75%, £974.86 pcm, variable for 22 years. Total payable £286,416. Total cost of credit £166,416 (including: £985 broker fee, £999 lender fee & £164,432 interest)

Unsecured Personal Loans
First Choice are tied to certain unsecured lenders.

Security is required on immovable property.

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