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Mortgage Credit in the EU (Green Paper)
Mortgage credit markets vary greatly between the different Member States, with the same being true for consumer protection in this field. In a Green Paper (initiatives to be discussed), the Commission proposes intervening on this market to promote a cross-border mortgage credit. It proposes among other things establishing minimum rules for the information that needs to be provided for this type of loan and the creation of a Euromortgage.
Green Paper: mortgage credit in the European Union [COM(2005) 327 final - Not published in the Official Journal].
It is argued in the Green Paper that the establishment of a transnational mortgage credit market in place of the numerous existing markets could contribute to European growth. A transnational market would benefit the consumer by promoting competition and increasing the choice of mortgage credit, while at the same time encouraging labour mobility. For the time being, national laws make it impossible for a transnational credit market to be established.
The Commission has launched a debate on the possible measures to be taken and the desired degree of Community intervention to bring about better integration of this market. It could eliminate obstacles to the supply of and demand for mortgage credits, and increase product diversity and price convergence. This would be beneficial both for the consumer and for economic development.
Moreover, the market is one of the largest in Europe and is continuing to grow. By way of example, the Green Paper states that by the end of 2004 Europe's mortgage credit markets will represent approximately 40% of European GDP.
Advantages of a possible Community intervention
An intervention by the Commission could ensure:
- an overall decrease in the cost of mortgage loans;
- a broader range of ancillary products (mortgage insurance etc.) and key mortgage products (such as more flexible mortgages) being offered;
- a decreased credit risk thanks to cross-border diversification;
- greater consumer protection.
The Commission has also launched a debate into the possibility of intervening, to varying degrees, in the following areas:
- the information provided to consumers;
- early repayment penalties;
- the method for calculating the annual percentage rate (APR) applied to mortgage loans, making it easier for consumers to compare prices;
- ceilings on interest and variation in interest rates;
- the standardisation of loan contracts;
- cross-border extra-judicial measures;
- the customer's creditworthiness and access to databases;
- property valuation;
- compulsory auction procedures;
- the possible creation of a Euromortgage, an instrument that would make it easier to take out and transfer a mortgage.
Greater protection for consumers
Consumers should receive all the information necessary to make a free choice. For the time being, a voluntary code of conduct is in place concerning the information made available on housing loans prior to the signing of the contract.
The Commission is reflecting on the future of this code, and wonders whether it would be better for the code of conduct to be made compulsory and whether the obligation to provide information that apply to the lender should also apply to other service providers such as brokers.
For more information on mortgages, see the website of the Directorate-General for the Internal Market.