Deal on EU mortgage directive reached

A break in the impasse on negotiations dealing with a proposed EU directive on mortgages has finally been registered. Negotiations between the EU institutions on the proposed directive which began in March 2011 seem to be drawing to a close with the recent political agreement reached between the Irish presidency and the European Parliament.

Malta has pre-empted this EU measure

The financial crisis triggered off in the US and which in no time at all reached European shores urged authorities to take action in order to target those factors which contributed towards the crises and this to ensure that history will not repeat itself.

The European authorities wanted to make sure that consumers would no longer be permitted to take out loans which they could ill afford at the risk of losing their property. The objective of the EU mortgage directive is to foster responsible lending practices. It introduces Europe-wide standards for the conduct of a credit worthiness assessment of potential clients by creditors when they are providing a mortgage. Where the result of such an assessment is negative, creditors will no longer be permitted to provide a loan.

Various requisites have been introduced in the directive for the benefit of consumers. Insofar as pre-contractual information is concerned, all European creditors will be obliged to hand out to consumers a standardised information sheet known as ESIS which will allow them to shop around to identify the best and cheapest credit offer which suits their needs. The ESIS is intended to be user-friendly and includes detailed information on the characteristics of the loan on offer.

Measures against misleading advertising by creditors have also been introduced. Furthermore, a number of quality standards must be respected by the staff of the credit provider. For instance, the proposed directive will introduce an obligation for staff to possess the appropriate knowledge and competences in the fields identified.

The proposed directive will grant consumers a general right to effect an early repayment of their loans. Member states will have the choice to impose that in such cases creditors should receive fair compensation. Consumers will also benefit from a guaranteed period of time before being bound by an agreement for a mortgage through either a period of reflection, or a right of withdrawal, or both.

The harmonised new rules are envisaged to improve comparability of mortgage products by consumers while promoting the development of a cross-border mortgage market due to the level playing field which will be created across Europe.

The political agreement reached now requires the formal endorsement of the European Parliament and the European Council.

It is interesting to note that consumers in Malta have long been enjoying the protection afforded by this proposed EU directive. Malta has pre-empted this EU measure by already having in place regulations which ensure that consumers are fully informed of their choices when they seek to obtain a mortgage.

In this way, they can obtain a product which best suits their needs, at the best price, and fully aware of the risks which they are taking. Such legislative measures, coupled with the prudence exercised over the years by Maltese financial services providers, have served to ensure that the local economic environment has remained healthy and stable when compared with that of our European neighbours.

mariosa@vellacardona.com

Mariosa Vella Cardona is deputy chairwoman of the Malta Competition and Consumer Affairs Authority and a member of the National Commission for the Promotion of Equality.