Agreement on mortgage credit

The long awaited vote on the proposal for a directive on credit agreements relating to residential property by the Economic and Monetary (ECON) Committee of the European Parliament took place on 7 June. The proposal has proved controversial and the Parliament has proposed a number of amendments to the original text. The basic rules will apply EU-wide, but some of the requirements would be adapted to reflect differences in national mortgage and property markets. CEPI briefly reports.

The rules aim to protect borrowers from irresponsible lending and impose requirements as to the authorisation, registration and supervision of lenders together with regulation of credit intermediaries. The amendments proposed by the European Parliament aim to protect borrowers further and include a new rule that the return of collateral (such as the property) will suffice to repay the loan, provided that the lender and borrower expressly agree to this in the contract.

Where the borrower defaults on a loan the new rules require that the lender would have to make every reasonable effort to solve the problem before initiating foreclosure proceedings. Borrowers would also have a 14-day cooling off period after signing the mortgage deal. MEPs also introduced a right for the borrower to repay early as long as the lender receives fair compensation but without payment of penalties. Borrowers should also be able to transfer the mortgage from one residential property to another when moving house. The legislation would also prohibit lenders from making loan offers conditional upon the purchase of insurance or other financial products from a specified provider.

The vote in ECON means that MEPs will now open negotiations with the Council in order to reach agreement on the final text which will still have to be voted on by the Parliament. CEPI welcomes all steps taken towards the creation of a more stable mortgage market, which is of vital importance for the property market as a whole.