EU legislation on mortgage market needed
by Arlene McCarthy
13 June 2012
Europe-wide rules would lead to a safer and fairer mortgage market for citizens because member states are not being proactive enough on their own – claims MEP
The latest report from the United Kingdom Land Registry showed that British property prices have continued to decline, falling 3 per cent between March and April. At a time of economic recession, low and falling house prices, and consumers experiencing difficulty getting mortgages; it is important to have strong consumer orientated legislation to regulate the mortgages market and protect consumers. The end of the stamp duty holiday is also impacting on the housing market with buyers now having to find additional funds to pay the tax man. As the eurozone crisis rumbles on, higher interest rates are likely to follow and there is little sign of improvement for the housing market on the horizon.
Local initiatives like the Manchester Mortgage being championed by Manchester City Council, which would mean that potential home-buyers would be able to get a 95 per cent mortgage on similar terms as a 75 per cent one - without the need to put up a substantial deposit - are a welcome development. But we need Europe-wide action and protections to bring about real change. Taking out a mortgage is probably the most significant financial decision in our lives. No household can afford to take the wrong decision. That is why irresponsible lending practices, which put people's homes at risk, need to be tackled.
Poor standards for ensuring responsible lending and borrowing in the mortgage market played a key role in the development of the financial crisis in the last decade. That is why the European Parliament has strongly welcomed this new Europe-wide law on mortgage credit reform. The draft law was overwhelming supported by MEPs in a key vote this month in the EP's Economic and Monetary Affairs Committee.
The proposal from the European Commission aims to: further the creation of an efficient and competitive internal market, in particular by facilitating cross-border activity; to enhance levels of consumer protection across the European Union and improve consumer confidence; and to promote broader financial stability by ensuring more responsible lending of mortgage credit. The law, if supported by the full EP in a vote in September, will introduce higher standards for selling mortgages and clear criteria that advisers should follow when providing advice to consumers - including supplying easily understandable information.
Buy-to-let mortgages had initially been covered under the regulation alongside all residential properties, but the UK government lobbied hard against its inclusion and secured an exemption for the British buy-to-let market. I particularly welcome the role the EP has taken in strengthening the pro-consumer measures in the draft law. These ensure flexibility for borrowers, particularly for early repayment and portability of their mortgage to a new property. These rules are important in the current time of crisis, to prevent consumers borrowing beyond their means.
A recent case highlighted on BBC Radio 4's Money Box programme revealed the plight of pensioner Jean Hyde. While suffering from dementia, she had been mis-sold a re-mortgage of £18,000 for property repairs. The loan was beyond her repayment means and following her death, the £18,000 loan was discovered unused in her account. Lloyds Bank has since admitted it was at fault, as it did not properly assess the pensioner's situation – although, they have refused to disclose the incentives given to staff to sell these loans.
This case makes it clear tougher rules are needed to protect vulnerable consumers The EP has also introduced new rules to prevent staff incentives being linked to products, to strengthen the information given to consumers and to ensure advisors carry out a proper assessment of customer's means before they are sold products. We want financial markets to serve the real economy and a safer and fairer mortgage market will help us achieve this.
Arlene McCarthy MEP is vice-chairwoman of the Economic and Monetary Affairs Committee, in the European Parliament
The latest report from the United Kingdom Land Registry showed that British property prices have continued to decline, falling 3 per cent between March and April. At a time of economic recession, low and falling house prices, and consumers experiencing difficulty getting mortgages; it is important to have strong consumer orientated legislation to regulate the mortgages market and protect consumers. The end of the stamp duty holiday is also impacting on the housing market with buyers now having to find additional funds to pay the tax man. As the eurozone crisis rumbles on, higher interest rates are likely to follow and there is little sign of improvement for the housing market on the horizon.
Local initiatives like the Manchester Mortgage being championed by Manchester City Council, which would mean that potential home-buyers would be able to get a 95 per cent mortgage on similar terms as a 75 per cent one - without the need to put up a substantial deposit - are a welcome development. But we need Europe-wide action and protections to bring about real change. Taking out a mortgage is probably the most significant financial decision in our lives. No household can afford to take the wrong decision. That is why irresponsible lending practices, which put people's homes at risk, need to be tackled.
Poor standards for ensuring responsible lending and borrowing in the mortgage market played a key role in the development of the financial crisis in the last decade. That is why the European Parliament has strongly welcomed this new Europe-wide law on mortgage credit reform. The draft law was overwhelming supported by MEPs in a key vote this month in the EP's Economic and Monetary Affairs Committee.
The proposal from the European Commission aims to: further the creation of an efficient and competitive internal market, in particular by facilitating cross-border activity; to enhance levels of consumer protection across the European Union and improve consumer confidence; and to promote broader financial stability by ensuring more responsible lending of mortgage credit. The law, if supported by the full EP in a vote in September, will introduce higher standards for selling mortgages and clear criteria that advisers should follow when providing advice to consumers - including supplying easily understandable information.
Buy-to-let mortgages had initially been covered under the regulation alongside all residential properties, but the UK government lobbied hard against its inclusion and secured an exemption for the British buy-to-let market. I particularly welcome the role the EP has taken in strengthening the pro-consumer measures in the draft law. These ensure flexibility for borrowers, particularly for early repayment and portability of their mortgage to a new property. These rules are important in the current time of crisis, to prevent consumers borrowing beyond their means.
A recent case highlighted on BBC Radio 4's Money Box programme revealed the plight of pensioner Jean Hyde. While suffering from dementia, she had been mis-sold a re-mortgage of £18,000 for property repairs. The loan was beyond her repayment means and following her death, the £18,000 loan was discovered unused in her account. Lloyds Bank has since admitted it was at fault, as it did not properly assess the pensioner's situation – although, they have refused to disclose the incentives given to staff to sell these loans.
This case makes it clear tougher rules are needed to protect vulnerable consumers The EP has also introduced new rules to prevent staff incentives being linked to products, to strengthen the information given to consumers and to ensure advisors carry out a proper assessment of customer's means before they are sold products. We want financial markets to serve the real economy and a safer and fairer mortgage market will help us achieve this.
Arlene McCarthy MEP is vice-chairwoman of the Economic and Monetary Affairs Committee, in the European Parliament
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