On 12 December 2018, HM Treasury published a draft version of the Mortgage Credit (Amendment) (EU Exit) Regulations 2019 (the draft SI). An accompanying explanatory information webpage was published on 22 November 2018.
The EU Mortgage Credit Directive (MCD) sets out the EU’s framework of conduct rules for mortgage firms. The UK’s Mortgage Credit Directive Order 2015 (MCDO) is domestic secondary legislation which transposed the MCD into UK law.
The draft SI addresses deficiencies in the MCDO that arise as a result of the UK leaving the EU. The primary points to note within the draft SI include:
- under current arrangements, the regulatory regime for consumer buy-to-let mortgages and similar property-related lending to consumers applies to land in EEA states. The draft SI makes amendments so that it only applies in relation to land in the UK. The FCA’s supervisory responsibility for such lending entered into post-Brexit will be confined to loans relating to UK property;
- the MCDO ensures that consumer buy-to-let loans protect the borrower from exchange rate risk where the loan is in a different currency from the borrower’s main income or assets. As the UK will no longer be an EU Member State after Brexit, amendments introduced through the draft SI mean that lenders will be able to allow borrowers to convert a foreign currency loan into pounds sterling instead of an EEA currency. Of particular note is that the draft SI maintains the option of the lender allowing the borrower to convert loans into the currency in which they primarily receive income or hold assets (which could include any non-UK currency); and
- HM Treasury will be conferred the power to make regulations modifying the remarks and assumptions which accompany the formula for the calculation for the annual percentage rate of charge (a standardised calculation of cost of credit), where they are out of date or do not create a uniform result. This effectively transfers to HM Treasury an existing power in the MCD for the European Commission to make such changes
HM Treasury intends to lay the draft SI before Parliament before the UK leaves the EU.