People taking out home loans will face tougher checks under new plans unveiled by Brussels.

The European Parliament’s Economic and Monetary Affairs Committee has approved proposals aimed at strengthening both the rights and obligations of consumers on mortgages.

According to these rules, those taking out a home loan will have to be scrutinised more closely to make sure they can repay their loans while banks and financial institutions will have to be clearer on the information they give to clients before lending them money.

The new rules also introduce a new cooling-off concept, where clients will be given a chance to change their mind.

The EU’s mortgage market is valued as €6 trillion or 52 per cent of the EU’s GDP.

Malta’s banking sector is highly exposed to the mortgage market, which is estimated to make up the bulk of the island’s local banking business.

The aim of the new rules is to give consumers taking out mortgages greater protection.

The main elements include a more efficient assessment of the borrowers’ credit worthiness so that only those who can repay the loan would get one. This will also reduce the banks’ potential losses while imprudent borrowers are spared bankruptcy. For the first time, prospective home owners would be entitled to a 14-day cool-off period so that they can change their mind about taking out a mortgage without giving any reason.

The cost of early repayments and risks of foreign-currency loans should be borne by banks, although the proposals specify that “fair and objectively justified” compensation for lenders must still be available.

The rules are expected to be adopted by the EP’s plenary session before endorsement by member states.