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Richard 10

Mortgage Credit Directive

​This page contains an overview of the new MCD regulations, the changes ​we are making and how these changes will affect you and your clients.

What is MCD?

The Mortgage Credit Directive (MCD) introduces a European Union-wide framework for mortgages in order to provide a higher level of protection for consumers. All lenders and intermediaries must be MCD ​compliant by 21 March 2016​.

How does this affect you?

MCD introduces a set of new disclosure requirements, some of which are similar to what you do already. Examples of these new disclosure requirements are as follows:

  • You must inform your clients whether you are limiting the products considered to first or second charge lending
  • You must inform your clients of the alternative finance options that may be available and/or more suitable
  • This information should form part of your initial disclosure processes, and must be provided in a

    durable medium

For full details, please visit the Financial Conduct Authority website.

Pipeline Applications

MCD requires lenders to comply with its requirements by 21 March 2016.

From this date onwards, all offers issued will be MCD compliant. Any offers made before this date must be signed and returned to the Society by the 18 March 2016.

European Standardised Information Sheet (ESIS) 

The European Standardised Information Sheet (ESIS) will be replacing the Key Facts Illustration (KFI), and lenders must begin using the ESIS from 21 March 2019.

Teachers Building Society will continue to issue a KFI until this date. However, in order to provide the same level of information as an ESIS, additional disclosures will be required.

We will be adding these additional required fields to our existing KFI (to be called a KFI+). As an intermediary, you will be able to produce a KFI+ in the same way that you produce KFIs: through our online application system or sourcing systems. 

Annual Percentage Rate of Charge (APRC) and second APRC

All residential lending will include two Annual Percentage Rates of Charges (APRC).

The first APRC is based on the current interest rate (plus reversionary rate), unless the product is fixed for the duration of the loan. The second is an illustrative example based on the highest borrowing rate over the previous 20 years.

Foreign Currency Loan

The definition of this has been changed by the MCD. This will include clients who would rely on any non-sterling income to repay the mortgage (either monthly payment or capital), or those who reside in another country.

Teachers Building Society has chosen not to offer foreign currency loans, and any income used to assess affordability must be contracted and paid in GBP. For interest-only loans, all repayment strategies must be held, valued and paid in GBP. 

Consumer Buy-to-Let (CBTL)

Under the new regulation, some clients will be categorised as Consumer Buy-to-Let (CBTL). CBTL will apply to ‘accidental landlords’, and they will be provided with additional complaints and compensation protection.

Examples of potential CBTL lending includes: 

  • Let to Buy customers
  • A customer or family member who has lived in the property since purchase. Lenders and intermediaries looking to take part in CBTL lending will need to apply for permission from the FCA
To determine whether your client's application is a Buy-to-Let or Consumer Buy-to-Let mortgage, click here to see our decision tree. 

Reflection Periods

This is a formal time period for your client to compare and consider other offers, and this period is triggered when the lender issues a binding offer. The reflection period must be at least 7 days from the date of the offer. A client is able to accept an offer during the reflection period.

At Teachers Building Society, our reflection period will be 7 days. However, a client is still able to accept an offer during the reflection period. If they wish to do so, we will ask them to declare this ​in the offer documentation. 

Binding Mortgage Offers

A binding mortgage offer means that the lender is willing to be bound by this offer for at least the designated reflection period. A binding offer can have its own terms and conditions, but these are governed by the new regulations.

At Teachers Building Society, our offer will continue to be valid for the current 3 month period and we will not withdraw an offer on the basis that the reflection period has expired.