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18th Nov 2013
The EU mortgage credit directive is set to be passed into law by the end of 2013. There are significant ramifications for KFIs which will come into effect in five years after the law is passed. Different algorithms for APRC calculations are likely to need actuarial support to ensure accuracy.
It seems true of most changes in legislation and regulation (but probably more so when the directive comes from the EU) that more time is spent in political negotiation than in assessing the underlying practicalities of the new rules. Although the calculations for the APRC are rather more complex than under the current rules they are relatively straightforward when compared with some of the calculations needed for KFIs in other parts of the financial services industry. At CTC we will await with interest the FCA's promised consultation, because as with all EU regulation it is often a matter of the way in which the UK authorities choose to implement the rules that can lead to a gold plating effect, not seen elsewhere in Europe.
What is certainly true of mortgages is that there is a complete lack of consumer appreciation of the real costs involved in different options. It is unlikely that the new rules will improve on this. At the point when most people decide on a mortgage they are more concerned with getting the mortgage, than with the initial and future costs. It is in the plethora of procurement fees, implementation charges and penalties on early repayment that the true hidden costs lie. If the application of the new rules means that some of these hidden complexities could be made more readily understandable then benefits could accrue to the ultimate consumer.
As well as being ready with software suited to the new KFI regime CTC will keep a watching brief on the overall developments to see what additional planning tools could be made available to service this growing requirement.