Lending institutions in the European Union, particularly banks, will have to adhere to a new set of rules when offering mortgages, according to a new directive which entered into law books yesterday.
Through the introduction of the Mortgage Credit Directive, clients should find it easier to shop around when choosing a financial lending institution for mortgages.
However, although the directive is another step towards the creation of a single market even for home loans, it is still practically impossible for a Maltese borrower to shop for a home loan in another EU member state and vice versa. This is because many financial institutions prohibit cross-border loans.
The new directive is another step towards a level playing field in this area and which provides the tools for the possibility of a future single market.
Consumers will now benefit from clearer and more understandable information with the introduction of the European Standardised Information Sheet – the same across the 28 member states – which will allow borrowers to understand better the risks associated with their mortgage agreement, as well as letting them compare offers and shop around for the best product to suit their needs.
Clients should find it easier to shop around
Through the new rules, clients will now also have the possibility to withdraw from a mortgage agreement as long as they do this during a cooling-off period. This proviso, a new concept, provides prospective home owners the entitlement of a new 14-day cool-off period so that they can change their mind about taking out a mortgage without giving any reason.
The directive will also introduce EU-wide standards for assessing the credit worthiness of mortgage applicants.
New minimum standards will ensure that clients aren’t offered mortgages they won’t afford to pay without preventing them from remortgaging at a cheaper rate.
The new directive also establishes principles for the authorisation and registration of credit intermediaries.
Intermediaries or agents that comply with the new business conduct rules will gain access to many more potential consumers in the single market via a passport regime. This will, in the long run, provide lenders with new business opportunities and will be a step towards the creation of a single European mortgage market.
Compared to many EU member states, the rate of interests offered by Maltese lending institutions are still much higher than the average in the EU.
In the past, this has prompted the governor of Central Bank to call on lower interests on mortgages.