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Provisional Agreement on Mortgage Credit
On 10 September the European Parliament supported the political compromise reached in April (see CEPI.eu#86) on the text of the Directive on Credit Agreements Relating to Residential Property (also known as the Mortgage Credit Directive). However it postponed the final vote pending agreement with the European Council on one outstanding point. This concerns the addition to the text of wording requiring EU Member States to undertake that the rules are properly enforced throughout the EU. Indicative date of vote in plenary session of the European Parliament is next October 22.
The legislation will cover mortgages on residential property, residential property including an office space and building land. Some of its requirements would be adapted to reflect differences between national mortgage and property markets, but the information for buyers would have to be presented in a consistent format across the EU. Some of the main points approved by the Parliament include:
• Any applicant for a mortgage must receive comparable information about the products available (in a standardised information sheet) and understand the total cost and long-run financial consequences of taking out the loan. Credit terms offered to borrowers would have to match their current financial situation and take account of their prospects and possible downturns with Europe-wide standards for assessing the credit worthiness of mortgage applicants.
• Borrowers will have to be given a mandatory reflection period of 7 days before signing the loan, or a 7-day right of withdrawal thereafter.
• The borrower will have the right to repay the loan early (subject to possible conditions to be decided by EU Member States and the right of the lender to receive fair compensation). Charging borrowers penalties for early repayment will be prohibited.
• New rules for loans denominated in a foreign currency will include a warning to the borrower before the contract is signed that the instalments payable could increase. Alternatively the borrower could be allowed to change the currency on certain conditions at the exchange rate stipulated in the contract.
• The return of the collateral (the property) will itself suffice to repay the loan provided that the lender and borrower agree to this in the contract.
• Where a borrower defaults on a loan, there should be requirements to sell the property at the best price and to facilitate the remaining debt repayments.
• Principles are established for the authorisation and registration of credit intermediaries together with a passport regime for those intermediaries. Once authorised in a Member State a credit intermediary will be allowed to provide services throughout the Single Market. This requires credit intermediaries to have and maintain an appropriate level of knowledge and skills, to hold professional indemnity insurance and to be of good repute.
• On property valuation EU Member States must ensure that reliable standards are developed for the valuation of residential property for mortgage lending purposes. They must require creditors to ensure that those standards are used. They must also ensure that property valuers are professionally competent and sufficiently independent to provide an impartial and objective valuation.
The Lithuanian EU Presidency will now have to negotiate on behalf of the Council with the Parliament to reach a compromise and final agreement.
• Any applicant for a mortgage must receive comparable information about the products available (in a standardised information sheet) and understand the total cost and long-run financial consequences of taking out the loan. Credit terms offered to borrowers would have to match their current financial situation and take account of their prospects and possible downturns with Europe-wide standards for assessing the credit worthiness of mortgage applicants.
• Borrowers will have to be given a mandatory reflection period of 7 days before signing the loan, or a 7-day right of withdrawal thereafter.
• The borrower will have the right to repay the loan early (subject to possible conditions to be decided by EU Member States and the right of the lender to receive fair compensation). Charging borrowers penalties for early repayment will be prohibited.
• New rules for loans denominated in a foreign currency will include a warning to the borrower before the contract is signed that the instalments payable could increase. Alternatively the borrower could be allowed to change the currency on certain conditions at the exchange rate stipulated in the contract.
• The return of the collateral (the property) will itself suffice to repay the loan provided that the lender and borrower agree to this in the contract.
• Where a borrower defaults on a loan, there should be requirements to sell the property at the best price and to facilitate the remaining debt repayments.
• Principles are established for the authorisation and registration of credit intermediaries together with a passport regime for those intermediaries. Once authorised in a Member State a credit intermediary will be allowed to provide services throughout the Single Market. This requires credit intermediaries to have and maintain an appropriate level of knowledge and skills, to hold professional indemnity insurance and to be of good repute.
• On property valuation EU Member States must ensure that reliable standards are developed for the valuation of residential property for mortgage lending purposes. They must require creditors to ensure that those standards are used. They must also ensure that property valuers are professionally competent and sufficiently independent to provide an impartial and objective valuation.
The Lithuanian EU Presidency will now have to negotiate on behalf of the Council with the Parliament to reach a compromise and final agreement.