When AMI first reviewed the European Mortgage Directive text, we felt that the sense of the text meant significant change for UK lenders. We were surprised when the FCA indicated that they were not intending to change their rules.
AMI spends significant time looking at the rules that directly impact brokers, and less on the sections that are lender specific – such as the framing of an ERC. When we looked at the rules –
we saw their point, in that the FCA rules were very similar to the MCD requirements – what is different has been UK lender interpretation of them.
Therefore we expect there to be a change in the way most lenders operate their ERC policy over the next few months. We have seen some shift already, but we should expect more. As the rules indicate that the charge should reflect the real cost of breaking the contract, we could still see a flat rate for fixed terms up to 2 years. However for 3 year fixes and longer, we should expect to see tiered ERCs which reduce over the term of the loan. Any structure that does not reflect this risks being challenged, however it is a lender responsibility to ensure they are complying on this topic and is not part of any broker assessment of suitability.