Brussels, 24/04/2013 (Agence Europe) - On Monday 22 April, the Irish Presidency of the EU Council of Ministers and representatives of the European Parliament approved new rules to boost protection for consumers taking out a mortgage from 2015 onwards for a house, land or commercial property.
“We have seen in Ireland how practices in relation to mortgage credit have contributed to the crisis in the financial system. The new rules agreed today will give consumers much better information about mortgage applications and offers,” said Irish Finance Minister Michael Noonan. EU Internal Market Commissioner Michel Barnier said the directive would prevent property bubbles of the type seen in Ireland and Spain and would encourage lenders to act responsibly.
The new EU rules introduce a standard document of pre-contractual information, such as clearer information about the overall annual interest rate so that consumers can compare conditions with other banks and mortgage lenders at home and overseas. Potential clients must understand the long-term cost of mortgages and lenders must make a better analysis of the client's ability to pay and whether the product offered suits the consumer's needs. For mortgages in foreign currencies, the dangers of changes in the exchange rate must be made clear.
For the first time, consumers across the EU will have seven days in which to change their minds after signing a mortgage deal, during which time they can withdraw without penalty. It will no longer be allowed to make mortgages conditional upon insurance contracts taken out from the same bank as the mortgage, but insurance policies bought elsewhere must provide the same level of guarantees as those provided by the lender.
Early repayment. Customers will be allowed to make early repayments on their mortgage if they have the extra cash needed. Member states will need to decide for themselves on the criteria for this, such as early repayment penalties. MEP Sven Giegold (Greens/ EFA, Germany) said that early repayment measures will protect the borrower from having to pay excess charges while ensuring that the commercial model of fixed, long-term interest rates is able to continue. He criticised the draft directive for doing nothing about the huge macroeconomic risks of mortgages being given to people who cannot afford them.
Barnier said the new rules would be in the interest of the industry because they will ensure that lenders abide by high professional standards and boost competition. The directive will introduce a framework for a single market in mortgages. (MB/transl.fl)