The Law Society has responded to the Financial Conduct Authority’s (FCA) proposals for the implementation of the European Mortgage Credit Directive (MCD).

The FCA consulted on its proposals for the implementation of the MCD. The MCD will require lenders to make “an offer binding on the creditor” to consumers, along with a reflection period of at least seven days, during which the consumer will have sufficient time to compare offers, assess their implications and make an informed decision.

The Law Society expressed concern over the implementation of the new ‘binding offer’ and reflection period stage, which it believes falls too late in the conveyancing process.

The FCA proposals for implementation of these new ‘binding offer’ and ‘reflection period’ stages are as follows.

  • As now, lenders will be able to make a conditional offer and then carry out the further actions that they need to satisfy themselves that they are willing to lend on the terms indicated. Conditional mortgage offers, however, cannot constitute a binding offer as required by the MCD.
  • Once a firm is satisfied that it is willing to lend the money to the consumer, it will need to make its offer binding.
  • The precise trigger for making the binding offer is left to firms to establish, but could be when receiving the certificate of title from the solicitor.
  • The consumer will then have a seven-day reflection period and can accept the offer at any time during this period.

The Law Society does not support this proposal. In particular, it does not agree that the provision of the certificate of title is now, or should in the future be, any part of the process of making the offer binding. The offer process is controlled, and should be dealt with, by the lender throughout.

The Law Society has argued that using the certificate of title as the trigger would:

  • fail to provide the protections for the consumer that the MCD is designed to achieve, because the reflection period would take place far too late in the process to enable the consumer to change mortgage provider;
  • risk putting the consumer into an even more onerous position than they would be without the refection period, because they are likely to have entered into binding contractual relationships to buy and sell property, which would be difficult and expensive to get out of, or to delay, until they found a suitable alternative provider; and
  • have the potential to interfere with the completion of property transactions, which would be a particular problem where there is a chain of transactions.

In the current process, mortgage offers are treated as binding by the consumer at a much earlier stage in the process, despite the offers containing conditions. Consumers would not be advised to enter into contracts to buy and sell property without what they rely on as a ‘binding offer’.

The Law Society has suggested that the issuing of the formal mortgage offer, provided that it does not contain conditions that are within the control or whim of the lender, should constitute the binding offer, and that this should trigger the reflection period. This will mean that in most cases, the reflection period is triggered early enough in the process to avoid the issues noted above, and therefore be of greater benefit to consumers.