Buying an immovable property is often considered as the largest expenditure an individual faces. Obtaining mortgage credit is de rigueur in most cases. The current discussions focusing on the local housing market and mortgage issues raise a number of topics for debate in this sensitive field. On another front and in a wider European context, other questions are being faced, which, while seemingly not so close to home, could soon be of particular interest.
In the process of integrating EU mortgage markets, with policy developments from the EU Commission expected before this summer, two particular spheres are being explored—the actual mortgage funding and consumer protection. The financing industry and its customers deal with various situations. Can all their needs be met? How should divergences be tackled?
Two reports, prepared by a Mortgage Funding expert group, and by a Mortgage Industry and Consumers expert group, both throughout 2006, highlight some of the concerns. Both expert groups were launched by the commission.
It would be pertinent to focus at this stage on the discussion between mortgage industry and consumer representatives and the general outcome of this exchange.
The industry was represented by the European Banking Industry Committee (EBIC) while consumer organisations on the expert group were the European Consumers’ Organisation (BEUC), Euro Coop and Confédération des Organisations Familiales de la Communauté Européenne (COFACE).
The principal themes tackled were pre-contractual information to customers, issues surrounding the question of advice, early repayment schemes and discussion on the annual percentage rate of charge.
As customers are searching to obtain a loan, they require information on the particular service they shall be paying for and also to be able to compare with competitors. A European Standardised Information Sheet (ESIS) exists in this regard. Consensus that general information should be given at the earliest opportunity by the lender, and prior to the consumer handing over personal information, was agreed to.
Some difficulties arose however on the timing of when the ESIS should be provided after personal details are presented. The majority of consumer organisations opined that sufficient time for consumers to be able to compare would be at least 14 days after personalised information was given. Such a move was not supported by the EBIC on the grounds that practices vary widely across the EU. The emphasis from the consumer representatives, as would be expected, is on maximising the possibilities to compare offers from lenders and to shop around for the best deal.
Offering advice seems to be a contentious subject. Should it be mandatory? On this there was no consensus. EBIC considers advice to be a separate service, and if provided it should be regulated in detail. At any rate, industry representatives point out that those loans too risky for the particular customer would not be approved.
The local market sets a number of conditions, such as timeframes, on early repayment. Industry as represented by the EBIC seems to favour such conditions being left to the particular contracts rather than making it a legal right. All parties involved in the discussion agreed that compensation to the lender should be provided in the case of early repayments. BEUC qualified its position as in agreement with the latter in the case fixed interest rates, with no compensation applicable for variable ones.
The discussion continues and has been widened further. Comments are being accepted from all stakeholders till mid-February. For further information, and a copy of the reports, you may wish to contact our Consultation Unit on [email protected] or the
EU Commission’s website on http://ec.europa.eu/internal_market/finservices-retail/home-loans/integration_en.htm
Julian Micallef is a consultation coordinator at Forum Malta fl-Ewropa