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EU HOUSING LOANS – The European Commission announced today its long-awaited proposals on mortgage credit. Is it the final warning for EU mortgages to integrate their markets on a voluntary basis?
EU Internal market may threaten member states with legislation, if no non-regulatory solutions are put forward. We welcome ECRC members and partners to post their views and suggestions on this White paper, so that solutions can be discussed before more formal measures are imposed on the Member States.

The Commission’s white paper highlights specific areas for attention (areas that it believes restrict consumer choice and add to borrowers’ costs). Early repayment rules, suddenly a huge talking point with regards to the Consumer Credit Directive following new Parliament proposals for second reading on 15th January 2008, currently vary across the EU and are set to be top of the list.

Other areas that states will be urged to tackle are likely to include the provision of clear, comparable information to borrowers before mortgage deals are signed; harmonisation of the way in which annual percentage rates on mortgages are calculated and advertised; and better access for lenders who try to check out credit histories cross-border.
The subprime lending crisis in the US has given extra topicality to this long-standing mortgage credit initiative, and officials are expected to stress that some of these areas, such as RESPONSIBLE LENDING PRACTICES, are directly relevant to preventing similar problems in Europe.

However, separate studies by the Commission into prudential standards, market practices, and incentives for mortgage lenders to move risk off-balance sheets are also under way.
Although the Commission acknowledges that most mortgage lending is done within domestic markets, it still argues that there would be additional benefits if consumers were given a wider choice of products from elsewhere in the EU.

Its argument relies on several studies – including one by London Economics, the consultancy, two years ago, which concluded that integration of EU mortgage markets could be worth almost €100bn ($144bn, £71bn) to the overall EU economy over a 10-year period.
However, the prospect of EU legislation in this area has been strongly opposed by lenders in some of the more developed mortgage markets, such as the UK. For example, the Council of Mortgage Lenders, which represents about 98 per cent of the UK’s residential mortgage lending industry, said on Monday that it did not want to see a second tier of EU rules that simply duplicated national regulations and required more paperwork.

See attached documents below.



The European Commission has published a White Paper on the Integration of EU Mortgage Markets. The White Paper summarises the conclusions of a comprehensive review of European residential mortgage markets and presents a balanced 'package' of measures to improve the efficiency and the competitiveness of these markets, to the benefit of consumers, mortgage lenders and investors alike. This is to be achieved in particular through improvement in the areas of cross-border supply, product diversity, consumer empowerment and customer mobility.

Internal Market and Services Commissioner Charlie McCreevy said: "This balanced package of measures is designed to bring about a more efficient and competitive EU mortgage market where consumers can shop around for the best product for their needs, confident in the fact that their lender acts in a responsible manner."

Evidence shows that the single market for residential mortgages is far from integrated. Obstacles exist that restrict the level of cross-border activity on the supply and demand sides, thus reducing competition and choice in the market. While the influence of factors such as language, distance, consumer preferences or lender business strategies cannot be underestimated, other factors, which prevent the conduct or substantially raise the cost of business for offering or taking out a mortgage credit in another EU Member State, can be addressed by appropriate policy initiatives. The potential benefits of removing these barriers could, according to some estimates, reduce the interest payable on a EUR 100 000 mortgage loan by as much as EUR 470 per year.

To unlock these benefits, the Commission seeks to improve the competitiveness and efficiency of mortgage markets by facilitating the cross-border supply and funding of mortgage credit as well as by increasing the diversity of products available. The White Paper also recognises that there can be no efficient market without confident and empowered consumers, who are able to seek out and choose the best product for their needs.

Recent events both in the US and in Europe have shown the economic and social importance of mortgage credit. Where possible and appropriate, the White Paper also draws on the initial lessons that can already be learnt from the recent turbulence in financial markets.

Non-legislative solutions are announced in particular in the field of land registration, property valuation, and forced sales procedures. The Commission does not rule out proposing future legislative measures if they are deemed necessary. However, until a rigorous impact assessment, including a quantitative cost-benefit analysis, has been undertaken and further consultation with all stakeholders have been concluded, the Commission considers that it would be premature to decide on whether a legislative approach would at this stage deliver the necessary value added.

EU Press release:

Tuesday 18 December: Measures to improve the efficiency and the competitiveness of EU residential mortgage markets

The news:
Aware of the crucial importance of mortgage credit markets, the Commission initiated a comprehensive review of the functioning and the level of integration of these markets.
A White Paper will be presented which summarises the conclusions of this review and will present a balanced 'package' of measures to improve the efficiency and the competitiveness of EU residential mortgage markets.

The background:
Mortgage credit is, for most European citizens, the biggest financial investment of a lifetime. Mortgage credit markets represent a significant part of Europe's economy, with outstanding residential mortgage credit balances representing 47% of the EU GDP. The integration of EU mortgage credit markets is central to a more efficient functioning of the EU financial system both at the wholesale and the retail level as well as the EU economy as a whole.

The Treaty provides the basis for the creation of a single market and the abolition of obstacles to the free movement of goods, persons, services and capital. Evidence, however shows that the single market for residential mortgages is far from integrated. Obstacles exist that restrict the level of cross-border activity on the supply and demand sides, thus reducing competition and choice in the market.

ID: 40688
Author(s): iff
Publication date: 18/12/07

Link to Commission website: EU White Paper and accompanying impact assessment

EU White Paper - Frequently asked questions

EU White Paper - Impact Assessment: Executive Summary

Created: 18/12/07. Last changed: 19/12/07.
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