EURACTIV.com with Reuters Est. 3min 23-04-2013 Forecslosure house.JPG Euractiv is part of the Trust Project >>> Languages: FrançaisPrint Email Facebook X LinkedIn WhatsApp Telegram EU countries reached a deal with the European Parliament on Monday (22 April) on the bloc's first common rules on mortgage lending, in an attempt to avoid a repeat of property bubbles that helped fuel the euro zone's debt crisis. Once written into European Union law, the rules will force lenders in Europe's €6.5 trillion mortgage market to check the creditworthiness of potential customers and their ability to repay, banning self-certified or "liar" loans. The rules will also make it illegal for those carrying out credit checks within banks and other lenders to have their pay linked to the number of mortgages they approve – a practice blamed for encouraging irresponsible lending in the past. "The new rules agreed today will give consumers much better information about mortgage applications and offers," said Ireland's Finance Minister Michael Noonan, whose country holds the rotating, six-month EU presidency and who led the talks. "We have seen in Ireland how practices in relation to mortgage credit have contributed to the crisis in the financial system," he said in a statement, referring to the implosion of a bubble that dragged the country into a financial bailout. The draft rules still need to be rubber-stamped by the full parliament and EU governments before entering force in mid-2015. Irresponsible home lending in the United States created a domestic housing bubble that, when it burst, helped to spark the global financial crisis. Property bubbles in Ireland and Spain left banks holding hundreds of billions of euros in bad debts, forcing governments to prop them up and then seek euro zone bailouts when the expense proved too much. As well as seeking to avoid reckless lending, the rules also increase consumer protection by making it harder for lenders to seize homes from borrowers who fail to keep up with repayments. Other aspects of the regulations are designed to encourage cross-border competition between mortgage providers, for example by requiring them to provide certain information in a standardised way to consumers across the bloc. Regulators believe greater competition between lenders in different countries will result in a better deal for consumers and contribute to the bloc's economic recovery. Read more with Euractiv Europe's Tobin tax plan challenged by Italy, UKThe proposal to introduce a tax on financial transactions (FTT) – or Tobin tax – across a number of EU countries by January 2014 is under pressure as Italy wants fundamental changes to the plan and the UK has launched a legal challenge in the European Court of Justice. Subscribe now to our newsletter EU Elections Decoded Email Address * Politics Newsletters PositionsMichel Barnier, the EU commissioner responsible for financial markets regulation, welcomed the deal, saying they will help prevent the housing booms and busts which happened in Spain and Ireland. “This Directive will help put an end to these excesses and foster responsible lending practices. Consumers will finally get the protection they deserve. They will be better informed so they can choose the mortgage product which best meets their needs, at the best price, and fully aware of the risks they are taking,” Barnier said in a statement. Barnier added that the Directive will also benefit mortgage credit providers by ensuring they meet new professional standards. “They play a key role in the economy,” Barnier said noting that two-thirds of the loans in portfolios are mortgages. “It will create the framework for a European-wide mortgage market enabling operators to finally be able to take full advantage of the Single Market and its 500 million consumers thanks to a European passport.” In the European Parliament, the liberals and democrats group ALDE hailed the agreement. "Protecting consumers was the number one priority of this agreement," said Philippe De Backer, a Belgian MEP from the Flemish Open-VLD party. "Consumers throughout Europe will now be ensured clear information and appropriate advice to be able to better judge a loan proposal before they enter in what is often a lifetime commitment". For the ALDE, pre-contractual transparency clauses were among the most important elements in the agreement and have been harmonised in order to allow consumers to apply for a loan in other member states. BackgroundMortgage lending is of vital importance to the European economy, representing almost 50% of EU GDP. Housing bubbles have emerged in member states as diverse as the Baltic states, Romania, Spain, the UK and Ireland, demonstrating that complex lending has not only been at the source of the financial crisis in the US, but also in the EU. According to the dominant view, at the origin of the crisis lies the spread of a risk-prone approach to lending money and, by reverse, in borrowing it. The sub-prime mortgage crisis highlighted practices which have pushed lenders to give money away without properly assessing borrowers' ability to pay it back, and these need total redress, read a 2009 paper from the European Commission. Lenders were encouraged to give loans in cases of high risk of default by exploiting a system that allows them to transfer the risk to third parties by issuing mortgage-backed securities. This is what the controversial proposal for a directive aims to remedy. Timeline 2013: EU Council of Ministers and European Parliament to rubber-stamp agreement Mid 2015: New rules expected to enter into force Further Reading European Union Irish EU Presidency: Press release on new European mortgage rules (22 April 2013) European Commission: Statement by Commissioner Michel Barnier following the agreement in trilogue on the Mortgages Directive (22 April 2013) European Commission: Mortage credit proposal [FR] [DE] Parliament political groups Alliance of Liberals and Democrats for Europe (ALDE): ALDE backs better protection for home buyers (23 April 2013)
