The recommendations will require yet more systems and other changes, with costs potentially running into millions of pounds
Toni Smith is sales operations director, First Complete
The final paper of the Mortgage Credit Directive (MCD) has finally been published, all 300 plus pages of it. Compliance departments up and down the country – and indeed across Europe - will now be digesting it and recommending changes.
It is inevitable that the recommendations will require yet more systems and other changes, with costs potentially running into millions of pounds. Lenders will then need to build these changes into the way they do business, with implications both for brokers and for the end consumer. This comes at a time when the industry is faced with a barrage of other costs, with the introduction of new consumer credit rules (CONC), annual hikes in personal indemnity insurance and of course the recently announced FCA hike in fees.
All of the changes and the corresponding costs – other than the PI ones - are intended to protect the customer from any potential harm, but ultimately it could well be the customer that picks up the cost. So will the benefits they derive from all the new measures be worth any additional costs that they are to bear?
Already the BSA has come out and said that the MCD offers no additional benefit to UK consumers and instead adds cost and complexity to the mortgage process. It is remortgage customers and those needing a second charge loan that the MCD will affect the most, especially now every remortgage customer changing lender will have to go through a full affordability assessment.
The other people to be most significantly affected are the brokers – if not in direct financial terms then in terms of time. AMI’s Robert Sinclair recently calculated that in 2007 brokers had to see just 1.5 clients in order to get a mortgage application, in 2014 in some firms that had risen to one application per six clients seen. That is four times as much work to place one mortgage case. If you times that by the extra amount of time a broker needs to spend with each client even to work out if a mortgage application is possible then you could potentially double that again.
Even the man (or woman) hours taken to digest and understand something like the MMR, MCD or the new CONC rules, multiplied across the country, by every person involved in the mortgage industry, and the cost runs into many thousands of pounds without an additional penny being spent.
The motives behind all these initiatives are good ones. Fundamentally they are to protect the borrower - both from themselves and the temptation to borrow too much, and also from unscrupulous people who would look to lend inappropriately. Many of the measures are also to help ensure that banks are regulated in such a way that the credit crunch can never happen again.
These are worthy aims, but the burden of such a raft of different costs also has implications. My hope is that the ultimate cost benefit ratio comes out in favour of the consumer.
