Brussels, 31/03/2011 (Agence Europe) - Better protection for people taking out a mortgage will inevitably cost the industry but this will easily be covered by the benefits to society in general, estimated at some €2 billion. Aware of the potential impact of the draft directive unveiled on Thursday 31 March (see EUROPE 10347), the European Commission wants to prevent any re-occurrence of the irresponsible lending and mortgage debt seen in Spain and Ireland, that fuelled property bubbles in the recent past. Consumer representatives welcome the draft directive, but industry is already closing ranks against it.
In the United Kingdom, some 47% of mortgages before the onset of the sub-prime crisis were granted without proper checks on borrowers' incomes. The Commission wants to prevent such practices by forcing lenders to properly analyse a borrower's ability to pay and by forcing lenders to reject applications if the relevant criteria are not met. A spokesperson for EU Internal Market Commissioner Michel Barnier said that mortgages should be based on ability to pay rather than on an assumption that property values will rise. Consumers will be provided with standardised information to help them make a wise choice and compare and contrast the mortgages available to them. They will be able to pay off their loan early but the member states will decide how this will work in practice and whether charges will apply. The draft directive also includes measures to explain the dangers of taking out loans in a foreign currency.
“Borrowing money to build or buy a home is the single most important financial decision in most people's lives, one which engages them for 20 or 30 years or longer. Borrowers cannot afford to be sold a bad deal”, commented Monique Goyens from the European Consumers' Bureau (BEUC). BEUC welcomes the standard form to provide potential clients with information about how much a loan will actually cost them, and the organisation also welcomes the harmonisation of calculation methods for the overall effective annual rate and tighter supervision of mortgage brokers, who will be required to take out insurance.
The European Mortgage Federation (EMF) takes a different view. Its general secretary, Annik Lambert, said: “In the current environment of flat economic growth, we have reservations about whether the regulation of consumer protection in the field of mortgage credit will ensure a more efficient functioning of the single market.” She added that greater integration of the market should focus on removing obstacles to cross-border lending. The Commission is, however, suggesting making it easier to borrow from abroad by ensuring national credit registers are accessible from outside the country. Properly regulated and monitored mortgage brokers from one member state would be able to apply for a European “passport” to work anywhere in the EU. The European Federation of Building Societies (EFBS) says the draft legislation is “counterproductive for the single market.” EFBS director Andreas J. Zehnder commented: “Instead of increasing product diversity for the consumer, the European Commission's concepts make it more difficult to compare cross-border financial offers.” He regretted that Michel Barnier has used French legislation as the model by introducing a minimum change-your-mind period before contracts can be signed. Zehnder says that the early repayment facilities will increase the cost of fixed rate mortgages. (M.B./transl.fl)