New European Union rules intended to benefit mortgage holders and consumers across Europe – and to avoid irresponsible lending and borrowing, a major root of the global financial crisis – have been agreed on by the European Union’s executive arm and the European Parliament.
The Irish Presidency of the EU said on April 23 that it had reached provisional agreement with the European Parliament on the new rules. It now remains for all 27 EU member states – 28, after July, when Croatia joins the EU – to agree on the rules.
According to a media statement by the Irish EU presidency, the new rules will strengthen the rights of future mortgage holders across the EU through:
Improved pre-contractual information to consumers including:
* A new European Standardised Information Sheet (ESIS) making it easier for people to compare mortgages
* New rules for advertising mortgages to include, for example, clearer information on the annual percentage rat
Improved credit-worthiness assessments tougher rules for credit assessment of people applying for mortgages
* Intermediaries should have authorisation from the relevant supervisory authority
* New competence requirements for mortgage lenders
Improved knowledge and competence requirements for staff of banks and credit intermediaries providing mortgages
Increased choice for consumers by allowing credit intermediaries to operate cross borders
The new Directive also allows for high level principles in relation to financial education for consumers and arrears and foreclosure. It imposes a requirement to adopt measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated.
The new rules, set out in this Directive, will also help improve comparability of mortgage products leading to a more level playing field across Europe and help the development of a cross-border mortgage market.
The provisional agreement reached with the European Parliament will now have to be endorsed by EU member states before being finalised.
“Mortgages are so important because they are the biggest financial commitment made by European families and the market represents more than the 52% of EU GDP. The new legislation on mortgages will become a reference in terms of consumer protection, financial inclusion and economic stability. It will help to avoid the irresponsible lending and borrowing that were at the roots of the current crisis,” the European Parliament’s rapporteur and chief negotiator on the issue, AAntolín Sánchez Presedo (S&D, Spain), said.
European Internal Market Commissioner Michel Barnier said that the financial crisis “started with the subprime debacle in the United States where mortgages were being handed out with no background checks carried out on whether consumers could afford them, and ill-informed and often vulnerable consumers were encouraged to take excessive risk.
“We have seen similar excesses in Europe, for example with the housing booms and the inevitable busts which followed in Spain and Ireland.”
He said the consequences had been enormous, with many people losing their homes to repossession.
“This directive will help put an end to these excesses and foster responsible lending practices,” he said, quoted by the BBC.
“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.”
(Photo: Daniel Wildman/sxc.hu)