Draft legislation in Parliament promises improved consumer protection and proposes standards to make mortgage markets more stable and flexible and better serve the real economy. This response to the Commission’s legislative proposals on residential mortgage credit, considered a cornerstone in restoring consumer confidence, will be hammered out between Parliament and Member States over the coming months.
The draft report, presented and discussed in the EP's economics committee on Wednesday, aims to achieve certain standards across the EU, without imposing a one-size-fits-all approach that could undermine the numerous important and useful cultural and economic differences that exist between Member States.
Taking the floor to present his report, rapporteur Antolín Sánchez Presedo (S&D, ES) said: "We need to address more issues than the Commission proposal, primarily regarding financial education, information and advice, the post-contractual relationship between lender and borrower, and further transparency and supervision... We must go for a proportionate approach which produces confidence and stability but also does not over-regulate and respects existing diversities."
Legislation with a wider reach
In comparison to the Commission's proposal, the draft report considerably widens the legislation's scope both to protect consumers and also to make the sector function better.
... to empower consumers
The draft report provides more detail on the information borrowers must be made aware of before taking out such loans and it would require Member States to develop educational campaigns. A stronger accent is placed on the post-contractual life of a mortgage, particularly regarding more flexibility, rather than only the pre-contractual phase. Standards are for example introduced regarding early repayment, the switching of lenders, and the right to convert a foreign currency mortgage into the national currency.
... for a stable mortgage market
Mr Sánchez Presedo addresses in greater detail the effects mortgage markets have on the general build-up of risk, notably through a stronger role for supervisory authorities and further transparency requirements. The draft report also tackles remuneration practices of lenders to reduce bad incentives and conflicts of interest. Provisions have been added to better guarantee correct valuations of properties, thereby reducing situations where lenders, due to over-valuating the properties on their books, do not have sufficient collateral to cover themselves in case of defaults.
A healthier sector with sound practices
The draft report also seeks to tackle some existing features and practices that warrant improving. It pushes for ways to decrease market-share concentrations. On average, the five largest lenders in each Member State currently control over 75% of mortgages. The rapporteur also calls for a reduction in the proportion of interest-only loans (where capital is only repaid at a later stage in a lump sum). Additionally, it requires that income verification become more of a standard practice when lenders assess mortgage applications. Around 50% of mortgage applications were processed without such checks in 2008.
The EU mortgage market is huge: in 2009, residential mortgage lending in the 27 Member States amounted to just over €6 trillion, which is equivalent to 52% of EU GDP. Home ownership is close to 70%. The EU mortgage market is of vital importance for the millions of European citizens who currently repay a mortgage and also for would-be homeowners, in a context where household debt levels are rising throughout Europe.
Chairman: Sharon BOWLES (ALDE, UK)