The European Union (‘EU’) have recently announced new mortgage rules to be introduced in all countries that are members of the EU.
England and Wales will therefore be affected by the new regime which, by March 2016, must be implemented in relation to all residential and commercial mortgages.
The new rules will mean that, rather than producing mortgage offers as we know them today, financial institutions such as banks and building societies will make an ‘offer binding on the creditor’ along with a seven day period for the consumer to reflect on the offer before accepting or declining it. The ‘offer binding on the creditor’ will mean that, once the financial institution has approved a borrower as a candidate suitable for a mortgage, there will be a trigger where the offer becomes irrevocable (for example, by the submission of a request for funds by the conveyancer). The rules are said to be aimed at allowing borrowers to fully assess the offers, think about the implications of entering into the life-changing loan and thus make an informed decision whether to enter into the agreement or not.
This differs from the current regime as, when a mortgage offer is produced, there is an expiry period (usually of 6 months) whereby the buyer can either draw down the funds and use them or allow the offer to expire. A buyer is not bound by the terms of the mortgage until the monies are drawn down by the conveyancer and used to buy a property.
It is feared that, when these rules are incorporated into our domestic law, this will place some significant strain and cost on the industry, remove some consumer protections and design a new framework for conveyancers and consumers to work within. The government have, however, given us some hope that they will limit the effect of the new regime by altering only a minimal part of the framework we currently work within.
Hartley & Worstenholme are preparing themselves for the changes and training its staff on the new regime so that, once introduced, we can hit the ground running.