McCreevy keeps his hands off mortgages

The European Commission seems to have been persuaded to take a light touch in regulating the markets in mortgage.

The findings of an expert group released in December supported Internal Market Commissioner Charlie McCreevy’s belief that market discrepancies can and should be ironed out by market forces.

The mortgage funding experts group was set the task early last year of advising on obstacles to the creation of an open funding market. The Commission’s green paper, released in 2005, had presented ample evidence of poor integration of mortgage markets, with minimal levels of cross-border activity, equivalent to a mere 1% of total sales activity.

There is huge economic potential for cross-border integration. Over the past five years, the average growth in lending has been around 9.4%. In 2005 the EU25 mortgage market was valued at around €5,100 billion for 2004-05.

Despite highlighting barriers to market integration, after reviewing such issues as tax and data reporting, the group supported McCreevy’s preference for a hands-off solution.

"We are very happy with the results and recommendations, particularly because they are in favour of market-driven solutions," says Jennifer Johnson, an adviser at the European Mortgage Federation. "We welcome the fact that they acknowledge that the mortgage funding markets are already efficient."

Another consultative initiative set up last year, the mortgage industry and consumer dialogue group, produced slightly more unsettling results. Consumers pushed hard for EU rules on early repayment of mortgages and for increased availability of pre-contractual data. The lending industry strongly opposed the idea of provisions allowing consumers the legal right to pay mortgages early subject to an indemnity based on a universal formula.

"We say it’s a contractual option, but not a legal right," says Johnson.

The idea of imposing obligations on lenders to provide pre-contractual information was also unacceptable to industry. Johnson claims that such rules would leave industry wide open to expensive litigation cases. "Consumers want the lender to advise the consumer on what products to take. It is the responsibility of the lender to provide adequate information, but it is the responsibility of the borrower to take decisions," she says.

McCreevy’s white paper on mortgages, due in the second half of this year, is thought unlikely to meet consumer demands. More probable perhaps is a strengthening of the current code of conduct for lenders, in force since 2002. The code is supposed to guarantee that consumers receive transparent and comparable information on housing loans in order to encourage cross-border competition. Despite being signed by around 4,000 credit institutions in 19 member states, however, the voluntary code is often ignored.

The European Commission seems to have been persuaded to take a light touch in regulating the markets in mortgage.