Workshop 2: "Housing Matters: Mortgage Lending in an Era of Unprecedented Prices, Lending and Risk" Abstract contributed by Achim Tiffe ISSUE I: WHAT KIND OF REGULATION DO WE NEED FOR AN EFFICIENT MORTGAGE MARKET FOR CONSUMERS IN EUROPE? The current proposal for a consumer credit directive does not cover any kind of home loans in opposition to the first draft from 2002: Otherwise the European Commission has the plan to create a framework for home loans in the European Union and speaks about new activities next year in its White Paper on Financial Services Policy (2005-2010) from 5 Dec. 2005. In the “Mortgage Group” of the European Commission the industry worked together with consumer associations and scientists for several years to think about possibilities and necessary rules to create a single market for home loans in the EU. The press release of the European Commission from 5 Dec 2005 let suppose that there is common sense only in the necessary information for consumers. But there seems to be no common sense about prepayment penalties, usury ceilings and other issues in relation to mortgages, and that even the form for a regulation of information – regulation, code of conduct – has not been decided on yet. The green paper on Mortgage Credit in the EU, COM 2005(327), from 19th July 2005 discusses questions on: advice provision, conditions for early repayment, the establishment of the annual percentage rate of charge for home loans, usury rules and interest rate variations, property valuation and forced sale procedures, as well as being undecided on whether a specific type of “Euromortgage” should be established as a standardised EU-wide instrument. The only “common” at the moment seems to be that a common single market in the European Union for home loans does not exist. The variety of home loans and national law is a boundary and there is still a strong separation of national markets. The European Commission has avoided an EU-directive for home loans in the past. With a European Code of Conduct for home loans, providers and consumer associations tried to establish standardised information to help consumers. However, there is no consensus on the implementation and the effectiveness of this code of conduct. A survey by iff showed that not every consumer gets this kind of information and a lot of information sheets were incomplete. The green paper by the Commission has reopened the debate on European regulation for home loans. There are different possibilities: a. inclusion into the consumer credit directive b. a separate mortgage regulation c. enlargement of the existing code of conduct Some institutions are of the opinion that the current situation is sufficient and that there is no need for another regulation at all. The two basic questions are: 1) what issues must be regulated EU-wide to create an efficient common European market for home loans, and 2) which is the best way to go ahead? ISSUE II: DIFFERENT NATIONAL LAW IN EUROPE - CAN WE LEARN FROM EACH OTHER? WHAT ISSUES FOR HOME LOANS SHOULD BE REGULATED? DO CUSTOMERS SIMPLY NEED MORE INFORMATION OR DO WE NEED A LEGAL FRAMEWORK TO AVOID SPECIFIC DEVELOPMENTS THAT FOR EXAMPLE THE MARKET CANNOT AVOID BY ITSELF? Though no European consumer law for mortgage loans similar to the EC-Directive for Consumer Credit exists, most of the EU member countries have established something similar to each other. There are however exceptions, such as the example of some countries not having an APR for home loans at all, or the fact that although prepayment penalties are generally very common, countries like France and Belgium have strict limits for consumers. The variety of national law is also an opportunity to learn from each other, e.g. do we need an APR for home loans or is it just a surplus? ISSUE III: WHAT SPECIFIC PROBLEMS AND RISKS DO CONSUMERS WITHOUT ASSETS AND LOW INCOME FACE, AND WHAT CAN WE DO TO GIVE THEM SUFFICIENT ACCESS TO MORTGAGES, AND AVOID STRUCTURAL DISCRIMINATION? WHICH PROGRAMMES WERE SUCCESSFUL? The situation of homeownership in Europe differs greatly. In some countries like Spain and Ireland, about 80% of the citizens own a house or flat, in other countries like Germany not even every second citizen is owner of his own dwelling. For families it is getting more and more difficult to finance an adequate flat or house because of the prices and the increasing requirements of the lenders. Even when it is possible to finance a house, people have even more problems to service the home loan. Steady income is not self-evident any more. The amount of foreclosure sales is rising steadily in Germany for example. Due to the demographic factor, house prices can be expected to vary in the future. It is expected, that in some areas house prices will experience sharp falls, whereas in other places, like economic centres, prices will steadily rise. The problems for lower income groups are: low income customers have more problems financing a house; they have a higher risk of actually losing their house; and they get into bankruptcy due to the uncertainty of their income flow. The risk of price decline for their property is also higher, and even the phenomenon of “redlining” could be a perspective for Europe in the face of risk-based pricing for consumer credit and demographics. In the future we need solutions and programmes to avoid these risks for low income customers, to enable this group to buy property and to use ones own property to create wealth. With a changing society there is also a demand for new forms of living. ID: 37160 Author(s): iff Publication date: 28/04/06     Presentation: Housing Matters by Gail Burks (46592 Bytes)

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