The UK's decision to exit from the European Union (EU) will no doubt have a significant impact on financial services with much of the financial regulation currently applicable in the UK deriving from EU legislation, including the Mortgage Credit Directive (MCD) which came into effect earlier this year.
We must stress that the UK's vote to leave does not mean that UK laws deriving from EU legislation are no longer applicable. The impact that the "Brexit" decision has on the regulatory regime is unknown and will of course depend on the UK government's negotiations with the EU.
In a statement published earlier this week, the Financial Conduct Authority said that:
"Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect. Consumers’ rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the Government changes the applicable legislation."
Lenders will therefore be required to abide by their obligations under the MCD for the foreseeable future and we do not anticipate any substantive changes to the current UK mortgage regulation regime following the UK's expected exit from the EU in the future.
This is mainly due to the fact that when implementing the MCD, the UK government focused on aligning the MCD's requirements with existing UK regulations, and minimising the impact on the UK industry and consumers. In addition, prior to its implementation, many of the requirements under the MCD had already been met as the FCA's predecessor, the Financial Services Authority, was able to anticipate some of the emerging EU proposals through the Mortgage Market Review it undertook in April 2014.
For these reasons, at the time of implementation, the UK government was confident that the MCD did not offer many benefits to UK consumers beyond those already provided by the high level of protection offered by the existing FCA regime for mortgages, so it is unlikely that the provisions of the MCD will be reversed.
One noticeable change that was brought about by the MCD was the widening of the territory covered by the UK mortgage regime to include mortgages on land in the European Economic Area. There is a possibility that the definition may be reversed to include land in the UK only but this will depend on the agreement reached between the EU and the UK and whether the UK will remain part of the single market. Again, this may not have a significant impact on UK firms as it is relatively rare for a UK lender to provide mortgages on properties located outside of the UK.
It is likely that the Brexit will have bigger economic rather than legal implications due to the economic uncertainty on issues such as mortgage rates, inflation and house prices. The mortgage market is unlikely to see much change on the legal front in the longer term but that will depend on the relationship that the UK seeks with the EU in the future. Until then, lenders should continue to abide by their obligations under UK law, including those derived from EU law.
