The European Mortgage Directive

by Mark Johnston

The European mortgage directive regulation is aimed at the distribution and regulation of mortgages on the European wide mortgage market. These measures are aimed at reducing the amount of irresponsible lending and borrowing that has been seen over the past years and they will also provide the potential for delivering benefits through greater integration of the European internal market.

Proposals for a directive on mortgages first emerged several years ago in the aftermath of the financial crisis.

Anyone involved in the UK mortgage market may be significantly affected by this work; whether consumer, mortgage intermediary, mortgage lenders, or a firm involved in mortgage funding.

The most recent report from the directive proposes to reinforce consumer protection by:

–          the introduction of a ‘cooling off’ period for borrowers of at least 14 working days after a mortgage offer has been made

–          compensation for consumers if credit is rejected because a reference agency supplies an inaccurate report

–          the right for borrowers to make over payments with out penalty

–          a ban on arrears charges if payments arise that are beyond the control of the borrower

–          advised sales standards

Other more controversial proposals with in this directive is the provision of information and advice and the greater scrutiny of the credit worthiness of borrowers with the emphasis on the assessment of the long term affordability of mortgage products sold to individual borrowers.

Many industry experts recognise the importance of having a sustainable mortgage market for all European consumers, at the same time however the UK already has a detailed mortgage regulatory regime which is tailored to the specific risks in theUKmarket in the form of the mortgage market review (MMR).

Lenders in the UK and in Europe are concerned that some of these proposals could have serious implications for mortgages and housing markets in many European countries.

Therefore in light of these concerns all interested parties in both the UK and Europe are seeking to ensure that the European regulatory proposals are appropriate to the needs of all firms and consumers in different countries.

The Council of Mortgage Lenders (CML) members, amongst others, have attended a briefing on the proposals where they raised their concerns.

Some of the specific concerns raised have been the question of the extra cost of these proposals on lenders as they are then likely to pass these on to their customers and also the extra burden on borrowers to provide evidence of long term affordability in addition to proof of creditworthiness.

The Financial Service Authority (FSA) has raised concerns about various parts of the proposals including plans to enforce whole market mortgage advice.

Shelia Nicoll, the Financial Service Authority (FSA) director of conduct policy said “the level of detail and disclosure being proposed for advertising and generic material risks information overload”.

It should be noted however, that the directive although in its final draft, it is at the approval stage and therefore it may not be in the same form when it does eventually come in to force.

The European parliament has already agreed that there should be a full impact analysis before any substantive amendments are introduced.


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