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Brussels, 10 September 2013
Statement by Commissioner Barnier following the European Parliament vote related to new rules on mortgage credit lending
The European Parliament confirmed today its willingness to make the mortgage credit sector subject to heightened consumer protection measures at Union level by approving in principle the new rules on mortgage credit lending.
I welcome this important step towards strengthening consumer protection in the financial services area and towards completion of the Single Market. I hope that the European Parliament and the Council will now finalise the text as soon as possible so that the new rules will benefit consumers without delay.
The aim of the Mortgage Credit Directive (MCD)1 is to make ‘responsible mortgage lending’ the norm across Europe. It will also grant lenders in the long run new business opportunities through the creation of a Single European Mortgage Market
The purchase of a property entails substantial costs and is often financed through a mortgage credit. Two thirds of European households’ entire outstanding debt is constituted by mortgage credits. In the wake of the financial crisis, arrears and default rates have risen with often dramatic consequences for individuals and a negative impact on the economies of Member States as a whole.
The Directive introduces ‘responsible lending’ practices across the EU with heightened credit worthiness assessment standards.
Credit intermediaries that comply with the new business conduct rules will gain access to a Single Market of 500.000.000 potential consumers via the pass-porting regime. This will result in more EU-wide competition and is expected to drive down prices in the long run.
The main objectives of the new rules are following:
1. Better information, more time to decide, heightened credit worthiness assessment standards
Consumers will be better informed, so they can choose the mortgage product which best meets their needs. Lenders will have to provide them with a standardised information sheet (ESIS) which will allow them to shop around to identify the right credit. To alert consumers to potential rate variations, the ESIS will also include worst-case scenarios as far as variable interest and foreign currency loans are concerned. Borrowers will benefit from a guaranteed period of time before being bound by an agreement for a mortgage (through a period of reflection, a right of withdrawal, or both). To ensure that borrowers can meet their credit obligations, the MCD will introduce Europe-wide standards for assessing the credit worthiness of mortgage applicants.
2. Business conduct rules
Lenders and credit intermediaries will be obliged to respect high-level principles in their direct contacts with clients. This means ensuring that the way they are paid does not prevent them from taking account of the consumer’s interests or disclosing any links between the credit intermediary and the creditor. Performance quality standards for staff will also apply. That means staff will have to have the appropriate knowledge and competence in fields identified, and be obliged to provide adequate explanation at the pre-contractual stage. There will also be standards for advisory services.
3. Early repayment
The Directive will grant consumers a general right to repay their loans early, thereby benefiting from a reduction in the total remaining cost of the credit. However, Member States may decide that in such cases, creditors are entitled to fair compensation for costs directly and exclusively linked to early repayment.
4. Pass-porting regime for credit intermediaries
The Directive establishes principles for the authorisation and registration of credit intermediaries and establishes a passport regime for those intermediaries. This means that once authorised in a Member State, a credit intermediary will be allowed to provide services throughout the Single Market. This process is based on a number of conditions: credit intermediaries have to possess and keep updating to maintain an appropriate level of knowledge and skills, to hold professional indemnity insurance and to be of good repute.
5. Arrears and foreclosures
The Directive finally also encourages lenders through high-level principles to apply reasonable forbearance when being confronted with consumers in serious payment difficulties.
Directive on Credit Agreements Relating to Residential Property (CARRP), which is colloquially also referred to as Mortgage Credit Directive.