New EU mortgage rules aim to stop property bubbles
THE European Parliament has agreed a common set of rules on mortgage lending aimed at avoiding the housing bubble that helped create the current financial crisis.
The new rules governing the €6.5 trillion mortgage market will tighten controls across the sector and make it easier for lenders to decide whether a borrower will be able to repay their debts or not.
The rules include:
• A new European Standardised Information Sheet (ESIS) making it easier for consumers to compare mortgages.
• New rules for advertising mortgages to include clearer information on the annual percentage rate.
• Tougher criteria for credit assessment of people applying for mortgages.
• New competency requirements for mortgage lenders.
• Increased choice for consumers by allowing credit intermediaries to operate across borders.
Finance Minister Michael Noonan, who led the negotiations as part of Ireland's EU presidency, hailed the agreement.
"We have seen in Ireland how practices in relation to mortgage credit have contributed to the crisis in the financial system. The new rules agreed will give consumers much better information about mortgage applications and offers," he said.
As well as the apparent improvements to the mortgage application process, the changes also affect how banks deal with borrowers when they can no longer make their payments.
Measures have been included to "encourage" creditors to exercise reasonable forbearance before foreclosure proceedings are initiated.
The regulations will have to be signed off by EU member states before they can be finalised. If that process goes smoothly it will be mid-2015 before the changes become law.
As well as making changes to the requirements for applying for a loan, the new rules are also set up to discourage lenders from pushing loans on people who cannot afford them. It will become illegal for lenders to link employees' pay to the number of mortgages they sell.