Brussels, 18/01/2007 (Agence Europe) - On Wednesday 17 January, the Commission published two studies on the integration of EU mortgage markets, one drawn up by the Mortgage Funding Expert Group (MFEG) (see EUROPE 9221), and the other by the Mortgage Industry and Consumer Dialogue (MICD) (see EUROPE 9194). These reports show that industry and consumers do not share the same views when it comes to the need for legal provisions covering early repayment of mortgage loans. The Commission's specific White Paper is expected for June this year.
In its report, the MFEG explores four key consumer protection issues: - namely pre-contractual information, advice, early repayment and the annual percentage rate of charge (APRC). On this last point, it notes that specific national rules have often led to unacceptable distortion on determining the price of a credit and on cross-border lending activity. Most of its members also take the view that early repayment should be contractual, that is, the parties to the contract should be able to negotiate whether repayment is included or excluded. Granting the right to early repayment would also constitute the risk that compensation would be below losses incurred by the lending party.
MICD notes disagreement between industry and consumers on this point. On one hand, lenders are in favour of leaving early repayment up to the “contractual freedom” between parties. According to industry, the introduction of a legal right in this field would not only have an impact on prices and product diversity, but would also involve systematic potential risk in the case of massive early repayments over a period when interest rates are low.
Consumer representatives follow a different line saying they are in favour of bringing in the right to early repayment. In their view, such a right would not result in reduced product diversity but, on the contrary, would lead to a strengthened market and competitive dynamic to mitigate any potential cost for lenders. Furthermore, early repayment should not be left to the appreciation of consumers, who are very rarely able to negotiate with the lender on the contractual conditions of mortgage loans. Consumer representatives also noted that lenders are keen to bind consumers with mortgage loans with a view to selling them other cross-financing products, a situation that would prevent mobility, endanger competition and restrict new entrants on the markets.
On the other hand, industry and consumers agree that there is a need to compensate the lender in a “just and objective” manner when a consumer reimburses a mortgage loan early. They must first of all agree on what a just and objective compensation means. And, as the European Consumers' Organisation points out, this compensation should apply only to fixed rate loans. (mb)