Brussels, 31 March 2011
Mortgages: better protection for European consumers
The financial crisis has shown the damage that irresponsible lending and borrowing practices can have on consumers and lenders, as well as the financial system and the economy at large. This is particularly important inin today’s integrated EU marketplace. With today's legislative proposal, the European Commission shows its determination to ensure that such practices are not repeated in the future, and to help consumers to regain confidence in the financial system. Borrowers will enjoy a higher level of protection through robust rules concerning advertising, pre-contractual information, advice, creditworthiness assessment, and early repayment. The requirement to provide personalised information to the consumer through a European Standardised Information Sheet will allow consumers to compare mortgage conditions from different providers. The proposed Directive also aims to create a more efficient and competitive single market for mortgages by creating a level playing field for all actors involved and making cross-border activity easier. It now passes to the European Parliament and the Council of Ministers for consideration.
Internal Market and Services Commissioner Michel Barnier said: "During the boom years, we saw examples of borrowers and lenders acting on the assumption that the good times could not end. Lenders and intermediaries alike engaged in irresponsible practices, and consumers were not warned of the consequences of their decisions. The draft set of rules presented today is designed to ensure a high standard of pre-contractual information and improved lending practices across Europe, while promoting a dynamic, competitive and more integrated Single Market for mortgage credit."
The aim of the Commission proposal is to create a responsible, efficient, healthy and competitive pan-European market that works to the benefit of consumers. It should also promote customer mobility, cross-border activity of creditors and intermediaries, and create a level playing field for all actors involved.
The focus is to ensure that all consumers purchasing a property or taking out a loan secured by their home are adequately informed about the possible risks and that all institutions engaging in these activities conduct their business in a responsible manner. The proposed Directive covers all loans which allow the consumer to borrow money in order to buy a home as well as certain loans to consumers to renovate a home. It also covers all loans to consumers that are guaranteed by a mortgage or another comparable security.
Outline of the initiative
The proposed Directive will:
Lenders and credit intermediaries will be required to:
In parallel the Commission also presents today a working paper on national measures and practices to avoid foreclosure procedures. It also provides examples for national public authorities and creditors on how rising default rates have been addressed across the EU, with a view to avoiding foreclosure procedures where possible and reasonable. These include reconciliation procedures, mediation, modification of loan terms, to minimum length of time before starting foreclosure procedures, public rescue schemes and provision of independent debt and legal advice, as well as the collection of data and internal reporting.
Despite the considerable size of the EU mortgage market (equivalent to 50% of European GDP) as well as the importance of a mortgage to consumers, there is no EU legislative framework in place concerning mortgage lending and the market remains highly fragmented.
While many factors drive the decision to grant a particular mortgage credit, it appears that irresponsible behaviour by certain market actors have in recent years contributed to excessive mortgage lending. Consequently, EU citizens are having difficulties in meeting their debts. In 2008, 16 % of people reported difficulties in paying bills and 10 % of all households reported arrears. In line with these difficulties, defaults and foreclosures have risen.
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