Mortgage sector calls for breathing space

Date: 31/10/1996

By Chris Johnstone

EUROPE'S mortgage industry is coming under scrutiny as Consumer Affairs Commissioner Emma Bonino considers what steps are needed to boost protection for borrowers and whether EU measures can spur the development of a single market in the sector.

Bonino has, however, given a pledge that no decision on the need for, or shape of, any proposal for a directive will be taken without first consulting the mortgage industry and consumer groups. Officials say that process should be completed by early 1997.

Mortgage institutions, even more than retail banks, have shied away from using market-opening EU rules to take advantage of the internal market by offering their products or establishing themselves outside their own domestic markets.

The European Mortgage Federation says national rules and practices on mortgage provision are so diverse and anchored in such different cultural traditions that any move towards a harmonised market or uniform consumer rules is pointless.

It points out, for example, that average loans vary from 74,000 ecu in the Netherlands to 12,800 ecu in Greece.

The federation, which represents companies handling 85&percent; of outstanding mortgage credit in Europe, has been carefully tracking Bonino's moves ever since she earmarked the mortgage industry as a priority for action this year.

The Directorate-General for consumer affairs (DGXXlV) has in the past called on the European mortgage industry to deliver on three main demands.

It says lenders should allow for the possibility of early repayment of mortgages by borrowers, agree on common rules for calculating repayments and make provision for potential borrowers to be given a cooling-off period after signing on the dotted line.

But the federation argues that allowing for early repayments and a cooling-off period would be impossible in those EU member states where lenders issue bonds to cover mortgages, such as Germany, Denmark, Greece and Austria.

It says the timing of the bonds and loans must be identical and there is no room for the pace of repayments to be altered or to allow for borrowers to get cold feet.

It also claims that the use of a standard measure - the annual percentage rate of charge - to calculate the cost of mortgages would leave borrowers little wiser, since conditions vary so much from country to country.

Industry officials say DGXXlV is making a second attempt to intervene in the mortgage sector after losing the battle to include financial services in the distance selling directive it proposed in 1992.

They argue that instead of Commission intervention, the industry needs a breathing space - until the year 2001 at least - to make the changes necessary to prepare for the introduction of a single currency.

“Other plans aiming at wide modifications of the banking sector's regulation should be suspended until the substitution is over,” insisted a federation spokesman.