by Mark Johnston
New EU Mortgage Rule Will Cause Confusion.
At a time when many industry experts have called for lenders to be more transparent about the true cost of mortgages it seems that under new rules proposed by policymakers, mortgage lenders across Europe will be forced to display worst case scenarios to borrowers taking on a loan.
One particular new rule involves each lender listing the maximum interest rate it has charged over the past 20 years, even though this has no bearing on its current deals.
The EU has said that this particular new rule will mean ‘home buyers are better informed about the costs and risks of taking on a mortgage’.
In a statement, the European Parliament said: “Anyone signing up for a mortgage in the EU should receive comparable information about the products available, and understand the total cost and long-run financial consequences of taking out the loan.”
However, Ray Boulger, of mortgage broker John Charcol, described the new rule as an ‘unnecessary intervention by the EU’.
New EU rules will make mortgage rates even harder for customers to understand, experts have warned.
Many industry experts say customers are already confused by the rates that lenders are forced to display, and that this will make it even harder for them to understand mortgage rates.
The fact of the matter is that comparing the cost of different mortgages is already hugely complicated, because some charge upfront fees while others prefer to charge a higher interest rate over the period. Using interest rates alone for comparisons may not give a good indication of the best deal overall because it does not reflect the total cost of a mortgage.
David Hollingworth from London & Country, the mortgage broker, said that “the extra information could lead to more customers failing to shop around and remaining on expensive standard variable rates (SVRs).”
A recent study by Which?, who offer consumers independent advice on a wealth of subjects, showed that most people could not correctly identify the cheapest mortgage deals for them. It revealed that only one in 10 people could do so correctly and just a quarter could identify the cheapest and most expensive deals.
Existing mortgage lenders are also concerned that these new rules will mean that newer entrants to the market will be able to display rates that look far lower than theirs, while entirely new entrants will be able to avoid the stipulation completely.
All this said it now appears that the controversial new EU mortgage rules that may bombard borrowers with “useless and confusing” information, according to many experts, have been given the green light by the European parliament.
All mortgage companies will have until 2015 to comply with the legislation and only mortgages with a fixed period of more than five years are expected to be exempt.
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