Barriers to cross-border mortgages stall industry

The EU mortgage market was valued at €40,000 billion per year in 2002, equivalent to 40% of the EU15’s gross domestic product. It could be worth a lot more, if more people borrowed money across national borders to buy property abroad.

But at present only 1% of mortgages are contracted across EU borders.

According to Matthias Tiemer, head of legal affairs at the European Mortgage Federation (EIF), lenders are ready to offer their services across borders, but are put off by issues such as the length and complexity of some procedures.

Forced sales, or repossessions, can take up to seven years in some countries. "This makes a lender think thoroughly about entering a foreign market," says Tiemer.

There is no sector-specific legislation at EU level. According to Internal Market Commissioner Charlie McCreevy, the jury is still out on whether there is a great need for EU action on the mortgages market. Thus far, the only sector-specific measure forthcoming from the European Commission has been a voluntary code of conduct setting standards that would enable the free flow of transparent information on the cost of mortgage loans across borders.

There was little compliance with the code among member states.

Last summer, the Commission issued a Green Paper based on the recommendations of an expert group - the forum group on mortgage credit - which was set up in 2003 to identify barriers to cross-border activity in the sector. Two other expert groups - the mortgage industry and consumer dialogue group and the mortgage funding experts group - were set up earlier this year to contribute to a White Paper which will be issued on 31 May.

The Commission’s apparent reluctance to introduce regulation of the market chimes with EIF’s views on the matter. "We’re in favour of integration as long as it benefits consumers and industry," says Tiemer. "The question is whether action at EU level would solve the issue. Even if there is a margin for further integration, it is not clear how big it is and how it can be achieved."

One of the ways in which member states might be encouraged to take action to make their systems more accessible could be through an internal market scoreboard on the cost and duration of forced sales procedures in the EU25, a measure that was mentioned in last year’s Green Paper.

Still, Tiemer wonders whether peer pressure will be sufficient to move member states.

The EU mortgage market was valued at €40,000 billion per year in 2002, equivalent to 40% of the EU15’s gross domestic product. It could be worth a lot more, if more people borrowed money across national borders to buy property abroad.