La Commission ouvre une consultation sur le crédit hypothécaire[en] 

EU action on mortgage lending has long been talked about. It is a huge market, amounting to 44% of the EU GDP at the end of 2003, and an issue of direct importance to consumers. The cross-border market is, however, very small (only 1% of mortgages are cross-border). The question posed by the Commission’s 2005 green paper was how to open up that market across borders and extend consumer choice.
There is a further question: do consumers want a European mortgage market and would it be of benefit? Introducing the green paper, Internal Market Commissioner McCreevy was clear: there may not be sufficient benefits and if not, there will be no EU legislation. Industry takes the view that voluntary standards, not regulation, are the way ahead.

Green Paper

In March 2003, the Commission set up a Forum Group on mortgage credit to examine obstacles to a single European mortgage market. Its report , delivered in December 2004, came up with 48 legislative and non-legislative recommendations. This formed the basis of the green paper, which addressed the following issues:

• Consumer protection: the single most important issue, concerning what information should lenders be required to provide to buyers. Should there be an EU standard for calculating and presenting annual percentage rate (APR) figures? Should the code of conduct be made legally binding?
• Access to information: how can consumers obtain information on mortgage products; should mortgage advice be compulsory? What safeguards should there be?
• Legal system: the legal rules of which member state should cover a cross-border transaction? How would lenders gain access to information on client credit-worthiness?
• Euromortgage: one possibility discussed is a European mortgage deed which would override the problems associated with different legal systems.
• Obstacles: such as tax barriers; redress procedures, interest rate caps. 
• Funding of mortgages: how can the funding pool be deepened? Could mortgages be provided by institutions other than banks and building societies? 

Continued Consultation

·         Cost/benefit Study:   In September 2005, as part of the consultation procedure, the Commission published a study by London Economics on the likely costs and potential benefits to the consumer and to industry of mortgage integration. The study estimated that, over the next ten years, integration would reap €94.6 billion and found that both borrowers and lenders would be keen to take up cross-border mortgages. 

·         A Public Hearing was held in December 2005.

·         Comments on the Green Paper were published in January 2006, followed by a feedback document form the Commission in May 2006.

• Mortgage Industry and Consumer Expert Group:   This group , set up in early 2006, comprises consumer groups (BEUC, Euro Coop and COFACE) and industry representatives. It aims to agree on common principles on consumer protection rules on information, advice, early repayment and APR. 
• Mortgage Funding Expert Group:  This group is examining the barriers to the funding of mortgages across borders. It seeks to establish whether and how pan-European funding mechanisms could be encouraged and the role this could play in the enhancement of a European mortgage market. 

Code of Conduct

Pending Commission action, the provision of mortgage credit in the EU continues to be regulated by a voluntary code of conduct . Set up in 2001, the code sets out the information to be provided to consumers across the EU prior to taking out a loan. 3600 mortgage lenders have signed up to the code. However, a 2003 study cast doubt on the efficacy of the code, showing that where information was given, it was in many cases incomplete or incorrect. The Commission is carrying out further assessment.

European Economy

A recent Commission quarterly report on the eurozone suggested that one of the reasons for the differences in economic growth amongst the member states may stem from the fragmented housing market. It concluded that integration of the housing market could contribute to overall monetary growth in the EU.

Commissioner McCreevy, introducing the proposal, said that its purpose was to review whether Commission action was needed to boost the European mortgage market. He stressed that the costs and benefits of any possible legislation would be stringently assessed before any regulation was proposed.

Immediate reaction from industry has not been enthusiastic about the Commission’s approach, complaining that the emphasis on consumer protection might lead to a decrease in the number and type of products available. Andreas Zender of the European Federation of Building Societies, said: "the Commission cannot enact the internal market, but has to create the necessary framework. This aim has not been achieved."

The European Association of Public Banks opposes regulation on the grounds that it would not produce economies of scale and might even, by disrupting well-established efficient practices, increase costs.

Both bodies were in favour of maintaining the code of conduct and there was also support for some form of European mortgage instrument.