McCreevy to act on mortgages

Internal Market Commissioner McCreevy has
announced that he will be pushing for an integrated cross-border
market for mortgages, but not necessarily via legislation.

The Forum Report made recommendations on the
following issues:

Consumer confidence

Transparent and comparable information on loans
such as that recommended in the code of conduct must be provided.
There should be harmonisation of the annual percentage rate (APR)
and of early repayment fees. They also recommended binding consumer
protection laws on the duty to give the best possible advice,
standard information to be given and redress procedures.

Legal issues

Clarification is required on the issue of which
law is applicable to the loan – that of the mortgagee’s country of
residence or the location of the property. Also, the Commission
should act on standards required for valuations. Any charges (ie
separate rights) over a property should be detailed in a public
register.

Estate agents/intermediaries

The position of an intermediary in loan
negotiations should be clarified with a requirement for
registration with a supervisory authority.

The European Mortgage
Federation
(EMF) published a report in October 2003
detailing barriers to integration such as taxation differences,
non-transferability of loans, differences in consumer protection
laws and regulatory differences. In the EMF’s view, these barriers
could be best overcome by action from all market players and not
legislation: there needed to be greater transparency, extension of
the code of conduct to include re-mortgages and other secured loans
and a common method used to calculate APR.

A survey undertaken by the UK
Consumer Organisation
found that the assumption that
consumer choice is predominantly made on price is not necessarily
true and that factors such as trust, simplicity of choice,
information overload and the need to feel secure are also extremely
important factors.

Eurocoop believes that credit
institutions must make greater efforts to give information to
consumers and sees the need for more binding measures in the light
of the failure of the code of conduct.

Europe has a €4 trillion market in mortgages but
it is still very largely a national market (only 1% of mortgages
are currently cross border). The Commission's Forum Group on
Mortgage Credit, comprising 20 experts from 11 member states, was
set up in 2003 to identify the barriers to cross-border traffic in
mortgages and set out how they could be broken down.

Prior to 2003, there had been a code of conduct
on mortgages designed to encourage cross-border trade. Three
thousand six hundred institutions signed up for the code
promising that consumers would be given transparent and comparable
information on the cost of loans. However, a study carried out in
2003 by the German Institute for Financial Services (IFF) showed
that there was very little actual compliance with the code.

In Dec 2004, the Forum Group published
a report setting out 48 proposals on how the market for mortgages
could be made more open and function across borders. The measures
were both legislative and non-legislative, consumer confidence
being emphasised as an essential prerequisite. In an interview
given to the Guardian newspaper on 11 February, it
seems clear that although Mr McCreevy intends to act remove
barriers to cross-border mortgages, this will not necessarily mean
new legislation.

  • The Commission will issue a green paper in May 2005.

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