Mortgage Credit Directive

With the new Mortgage Credit Directive (MCD) now in effect, the Society’s Chief Executive, Paul Tilley offers a straight forward explanation of exactly what it entails and how it will affect our customers…

The European Commission has brought forward the directive as European legislation, which is designed to foster a single market for mortgages and offer protection for customers. The MCD was implemented by the Financial Conduct Authority (FCA) on 21 March 2016.

Before the MCD came into force, the UK already had an existing framework in place to regulate mortgages in order to protect customers, so on the whole the new legislation has had modest impact on customers.

The main changes which will affect customers include:

  • The change from KFI to KFI+ and the ESIS

The Key Facts Illustration (KFI) is a pre-contractual disclosure document which, up until 21 March, was given to customers prior to taking a mortgage. This provided personalised information on a mortgage agreement bespoke to the individual’s circumstances. After the implementation of the MCD, a lender could no longer provide a KFI but must now provide a KFI+ or the European Standardised Information Sheet (ESIS). Both of these documents will also allow customers to compare credit products from a single provider and across the market, helping them to make an informed decision. The KFI+ can be provided until March 2019 at which time only the ESIS can be in place. The Society has opted to initially provide the KFI+.

  • APRC replacing APR

APRC stands for Annual Percentage Rate of Charge and is similar to, but replaced, the Annual Percentage Rate (APR) previously shown on financial promotions, product specifications and on the KFI. The definition of the APRC is the total cost of credit, expressed as an annual percentage of the total amount of credit, including all applicable costs relating to the mortgage including drawdowns, repayments and charges.

The changes mean that where the borrowing rate or charges may vary, customers will be informed of the possible impact that any variation may have on the total amount which may need to be paid. This is shown on the KFI+ or ESIS by way of a second APRC in a representative example, which is calculated using the highest borrowing rate over the past 20 years.

  • Cooling off period for mortgage offers

The MCD requires banks and building societies to provide a period of reflection at the mortgage offer stage of at least seven days to prospective borrowers, to help them consider the transaction before they can proceed. However, customers may choose to opt out of this period of reflection if they so choose. The Society provides a period of reflection of seven days from the date of the offer as it is required to. The lender may only withdraw an offer in limited circumstances, such as a material change in the financial position of the customer. The offer becomes binding on the customer when funds are drawdown.

For more information on the Mortgage Credit Directive, visit