In an attempt to tackle credit market risks that were at the the root of the financial crisis, the European Commission will today publish a Directive on Credit Agreements Relating to Residential Property, the result of a year-long consultation with industry.
But industry laments that their concerns have gone unheard and that instead of boosting the single market, the directive will make it harder for financial institutions to lend and for buyers to borrow.
Who bears the burden?
Mortgage lobbyists are unhappy with the shape of the directive as they believe it will make lenders too cautious because it shifts the burden of responsibility onto them.
"The objective of this directive is to ensure that all credits provided to consumers benefit from a high level of protection," reads a draft of the directive seen by EurActiv.
The aim of the directive is to encourage a single market for mortgage lenders by creating a pan-European passport for companies, and to impose stricter credit checks in response to a property bubble inflated by lenders' lax scrutiny of consumer credit.
Annik Lambert from the European Mortgage Federation argues that the Commission is shooting itself in the foot.
"They are not going to help markets, though the European Commission says this is their aim," Lambert told EurActiv.
Lambert is referring to the stringent credit checks outlined in the directive, which she believes will make lenders too cautious and make it more difficult for first-time buyers to get a loan.
"A negative creditworthiness should indicate to the creditor that the consumer is unable to afford the credit and as a consequence, the creditor should not grant the credit," reads the directive.
Tanguy van de Werve, director-general of Eurofinas, the association representing consumer credit providers in Europe, agrees that the directive will lessen mortgage lender's appetite to take on first-time buyers.
"The obligation to deny credit based only on the negative outcome of a narrow creditworthiness assessment could exclude different categories of borrowers, such as for example, a 25-year-old professional who might have a limited income but a long-term earning capacity," explains van de Werve.
The EU changed its thinking on the draft directive in 2009 after mass foreclosures and defaults rippled through the mortgage market.
