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Government consults on EU Mortgage Credit Directive

The government has recently (5 September 2014) launched a consultation on incorporating new European regulations on mortgage lending into UK law.

These new regulations, which are set out in the EU Mortgage Credit Directive, set common standards that EU members need to meet in order to protect consumers taking out loans to buy a residential property.

The government has already introduced a number of major reforms to mortgage lending, including creating new, stronger regulators with powers to ensure people only borrow what they can afford to repay, as well as tackle any future risks to financial stability from the mortgage market at a much earlier stage.

While the UK already complies with most of these new EU rules, the legislation implementing the directive contains some changes which include:

  • bringing the regulation of second charge mortgage lending into line with first charge mortgage lending. The government has intended to make this change for a number of years but chose to wait for these new EU rules to be implemented, in order to avoid excessive disruption to both mortgage firms and customers
  • introducing a new set of regulations for buy-to-let lending, where the lending is to consumers rather than for business purposes. This is not expected to affect the vast majority of buy-to-let lending which is done for business purposes and is therefore not subject to the directive

The changes will not come into effect until March 2016, but the government is consulting now in order to give mortgage firms and customers as long as possible to prepare for them.

The consultation will run for 8 weeks.

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