The Law Society have published new information on upcoming changes to the Mortgage Credit Directive (MCD).
The EU-wide initiative brings a new framework of conduct for mortgage firms and is closely aligned with the UK’s current mortgage regulation. The new rules come into force on March 21s. it applies equally to first and second charge mortgages.
According to the law society the main change that will affect conveyancers is the proposal to give prospective borrowers a “reflection period” after receiving a mortgage offer.
The Law Society said: “The MCD requires lenders to make a ‘binding offer’ to consumers and to give them a ‘reflection period’ of at least seven days. The reflection period is intended to allow the consumer sufficient time to compare offers, assess their implications and make an informed decision.
“However, not all lenders have a system whereby they issue a mortgage offer to a consumer who then formally accepts at a relatively early stage in the process. This makes the issue of a ‘binding offer’ difficult to define. Most lenders effectively leave the offer open so that there is no ‘binding offer’.
“For this reason, it is proposed that the submission of the Certificate of Title acts as confirmation that the borrower wishes to proceed.”
An amendment was made to the CML Handbook on 1st February to reflect the changes. The amendment adds the wording in bold below into clause 10.2:
10.2 We shall treat the submission by you of the certificate of title as confirmation that the borrower has chosen to proceed with our mortgage offer and as a request for us to release the mortgage advance to you. Check part 2 to see if the mortgage advance will be paid electronically or by cheque and the minimum number of days notice we require.
The CML said: “‘The amendment is designed to reflect the introduction of a requirement, as the result of the Mortgage Credit Directive, for mortgage customers to have a ‘reflection period’, of at least seven days before accepting a mortgage offer. Recital 23 and Article 14(6) of the directive set this out. The customer can bring that reflection period to an end earlier, by accepting the mortgage offer.
“The wording intends to clarify that, in cases where the mortgage lender does not already require a formal acceptance from the borrower, that the current practice of the conduct of borrower in drawing down the loan, acts as acceptance of the mortgage offer, and creates the contract. This in turn, in cases where the draw-down happens before the end of the reflection period, confirms that the customer has brought the reflection period to an end by their conduct, which Recital 23 expressly allows for.
“Lenders will explain the concept of the reflection period in information provided to prospective borrowers, for example, in the mortgage illustration, mortgage offer and mortgage terms and conditions. Many lenders are either allowing a 10 day reflection period (to account for postage time) or aligning the reflection period with the existing offer expiry date (which can be up to six months).”
