Brussels, 30/03/2011 (Agence Europe) - On Thursday 31 March the European Commission will unveil draft legislation to increase consumer protection on the mortgage market. European industry believes that the creation of an EU market for retail financial products like mortgages should be achieved by making it easier to sell financial products in other countries rather than by increasing consumer rights.
Initially described as a directive on responsible lending, the new legislation on mortgages on residential property will set out a series of measures to increase consumer protection and harmonise the pre-contract information to be supplied by retail investors, including special rules for mortgages in a different currency from the one of the country where the loan is taken out. The duty of examining an individual's ability to take out a loan (ability to pay), which is already current practice, will be made compulsory and lenders may be forced to reject applications if the applicant is unsuitable. Early repayment of a mortgage will be authorised but member states will have to decide on the details. In order to make it easier to compare mortgages, the directive will cover the annual percentage rate of change (APRC) along the lines of the directive on consumer credit. There will be tighter controls of lenders and intermediaries.
Although not coming as a surprise for the industry, the draft directive is expected to be opposed by professionals. Annik Lambert, the general secretary of the European Mortgage Lending Federation, says that the industry is not saying that consumer protection is not important, but it is not what the industry needs at the moment to make it easier to integrate the market. She fears that the Commission's new legislation would transfer the transaction risks from the borrower to the lender, which would mean that along with the new EU rules increasing banks' capital requirements, it might have a negative impact on the number of mortgages on offer, particularly for first-time buyers and people on low incomes.
Annik Lambert says that only rules that make it easier to sell mortgages in other countries would make it possible to indorse a single market in this domain because unlike consumer credit to buy a car, for example, most consumers prefer their mortgage to be covered by the legal system of the country where the property they are buying is located. Measures recommended by Lambert include non-discriminatory access to national land registers and credit registers, convergence of property assessment procedures and more effective forced sales procedures.
EU Internal Market Commissioner Michel Barnier's department will be publishing research shortly into mortgage default (by the borrower) and expropriation procedures in the EU since the 2008 financial crisis. The document will identify voluntary measures by lenders and compulsory measures introduced by the member states, like setting up mediation, changing mortgage conditions and setting up public bailout systems. (M.B./transl.fl)