People after a home loan might soon be given the option to get one from a bank on mainland Europe, under rules proposed by the European Commission.
The rules will make it possible for clients to get home loans from “foreign” institutions and not necessarily depend on local banks and credit agencies, as it is customary today.
Presenting the proposals, which have to be approved by all member states and the European Parliament, Internal Market Commissioner Michel Barnier said the rules were designed to ensure a high standard of pre-contractual information.
They were also meant to improve lending practices across Europe while promoting a “dynamic, competitive and more integrated single market for mortgage credit”.
Despite the considerable size of the EU mortgage market, equivalent to 50 per cent of European GDP, there is no legislative framework in place related to mortgage lending and the market remains highly fragmented.
While many factors drive the decision to grant mortgage credit, it appears that irresponsible behaviour by certain market actors has in recent years contributed to excessive mortgage lending. Consequently, EU citizens are facing difficulties to meet their debts.
According to the Commission, in 2008, 16 per cent of people reported difficulties in paying bills and 10 per cent of all households had arrears. In line with such difficulties, defaults and foreclosures have risen.
The aim of the Commission proposals is to build a responsible, efficient, healthy and competitive pan-European market that works to the benefit of consumers. It would promote customer mobility, cross-border activity of creditors and intermediaries and create a level playing field for all actors involved.
The focus of the proposal is to ensure all consumers purchasing a property or taking out a loan secured by their home are adequately informed about the risks and that all institutions engaged in these activities conduct their business in a responsible manner.
The proposed directive covers all loans that allow the consumer to borrow money to buy a home and also certain loans to renovate a home. It also covers all loans guaranteed by a mortgage or another comparable security.