European Parliament resolution on mortgage credit in the EU (2006/2102(INI))
Date: 2006-11-14
Institutions: Committee on Economic and Monetary Affairs, European Parliament
Subjects: consumer information, consumer protection, contract, financing, mortgage, real estate credit, single market

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33.
Regrets the lack of environmental guarantee in connection with the construction of the North Euro-
pean gas pipeline to prevent a potential environmental disaster in the Baltic Sea region; calls on the Com-
mission to draw up an environmental
impact assessment for the planned project and to postpone any
decisions on the co-financing of the project;

34.
Calls for prior consultation, in all cases, of adjoining countries and other countries concerned where
projects may have an impact on the common environment, even when the project is carried out in inter-
national waters; notes that experience shows that environmental impact assessments often have shortcom-
ings and that they are not carried out in consultation with other States; calls on the Commission, therefore,
to propose a mandatory negotiating mechanism between Member States, and urges the Council to act at
international level to develop mandatory environmental impact assessments in relations between the EU and
third countries;

Instructs its President to forward this resolution to the Council and Commission and the govern-

35.
ments and parliaments of the Member States.

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P6_TA(2006)0487

Mortgage Credit

European Parliament resolution on mortgage credit in the EU (2006/2102(INI))

The European Parliament,

— having regard to the Commission Green Paper on Mortgage Credit in the EU (COM(2005)0327) (Green

Paper),

— having regard to the Commission White Paper on Financial Services Policy 2005-2010 (COM(2005)

0629,

— having regard to the response of the Governing Council of the European Central Bank (ECB) to the

Green Paper on Mortgage Credit in the EU of 1 December 2005,

— having regard to the Second Council Directive 89/646/EEC of 15 December 1989 on the coordination
of laws, regulations and administrative provisions relating to the taking up and pursuit of the business
of credit institutions (1),

— having regard to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions (recast) (2) (Capital Require-
ments Directive) and Directive 2006/49/EC of the European Parliament and of the Council of 14 June
2006 on the capital adequacy of investment firms and credit institutions (recast) (3),

— having regard to Directive 2002/65/EC of the European Parliament and of the Council of 23 September

2002 concerning the distance marketing of consumer financial services (4),

— having regard to Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000
on certain legal aspects of information society services, in particular electronic commerce in the Inter-
nal Market (5),

— having regard to the modified proposal for a directive of the European Parliament and of the Council

on credit agreements for consumers amending Council Directive 93/13/EC (COM(2005)0483),

(1) OJ L 386, 30.12.1989, p. 1.
(2) OJ L 177, 30.6.2006, p. 1.
(3) OJ L 177, 30.6.2006, p. 201.
(4) OJ L 271, 9.10.2002, p. 16.
(5) OJ L 178, 17.7.2000, p. 1.

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— having regard to the Commission's amended proposal for a Council directive on the freedom of estab-

lishment and the free supply of services in the field of mortgage credit (COM(87)0255),

Tuesday 14 November 2006

— having regard to Rule 45 of its Rules of Procedure,

— having regard to the report of the Committee on Economic and Monetary Affairs and the opinions of
the Committee on the Internal Market and Consumer Protection and the Committee on Legal Affairs
(A6-0370/2006),

A. whereas mortgage credit represents a large and rapidly expanding market and is a vital part of the EU's

economic and social structure,

B. whereas some Member States have experienced unprecedented growth in the property market, which
has succeeded in making the construction sector anti-cyclical, a key factor in achieving growth and
employment during the economic recession experienced in Europe during the period 2000 to 2005,

C. whereas historically low interest rates have resulted in much extended mortgage borrowing, particularly
in those countries where it has been based on confidence which has brought about economic growth,

D. whereas the protection of European consumers must be a paramount feature of any legislative action
on mortgage credit, which for most EU citizens represents the biggest financial commitment in their
lifetime, with long-term implications for their standard of living and financial stability,

E. whereas enhanced transparency on key features concerning available mortgage products will not only
improve market efficiency, but will also increase the confidence of borrowers looking for mortgage
credit deals in other Member States and enable them to take informed decisions,

F. whereas consumers need to have access to the fullest and simplest information possible, provided on a
case-by-case basis in standard forms lending themselves to comparative study across Member States, in
order to enable them to exercise their freedom of choice more effectively when taking out mortgage
credit on a cross-border basis,

G. whereas targeted measures for an improved product and services range, wider availability and an inte-
grated funding market could enhance market efficiency, economies of scale and diversification reduce
borrowing costs, and thereby benefit the European economy,

H. whereas creating access to client credit databases for mortgage service providers in case of cross-border
lending is a crucial contribution to boosting competition in mortgage-based lending activity and creat-
ing a single European mortgage market,

I. whereas an integrated mortgage market will facilitate workers' mobility,

J. whereas, surprisingly, there is little pressure from mortgage lenders or consumer organisations to
develop cross-border lending other than by physical establishment in the separate national markets,

K. whereas considerable market barriers have so far hindered the increase of cross-border mortgage credit

offers, so far amounting to less than 1 % of the overall EU mortgage market,

L. whereas on a number of important issues the Community has no competence, or only limited compe-

tence, and whereas the principles of subsidiarity and proportionality must be respected,

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M. whereas mortgage brokers can play an important role, drawing on their expertise with mortgage pro-
ducts on their domestic market but also in markets across Member States, supporting cross-border
activity and acting as a bridge between consumers and both foreign and local financial institutions,

N. whereas significant variations in the range and characteristics of products, distribution structures, loan
durations, and funding mechanisms exist between Member States, due to differing legal, fiscal, regula-
tory, and consumer protection conditions,

O. whereas mortgage credit markets display an extremely high degree of complexity; whereas legal systems
and financing cultures, property law and land register systems, law of rights in rem, law governing
credit agreements, valuation issues, forced sales procedures, refinancing markets, etc., differ considerably
between one country and another while at the same time an internal coherence exists among the
various fields,

P. whereas there still exist tax obstacles of a discriminatory nature which impede the exploitation of a

single market for mortgage credit and may in some cases even contravene EC legislation,

Q. whereas there is a direct link between the mortgage market and macroeconomic policy and the conduct

of monetary policy in particular,

R. whereas mortgage market volatility can affect housing and economic cycles and thus cause systemic

risk,

S. whereas, in order to bring more efficiency and competitiveness to the EU mortgage credit market, it
may be preferable to look first at the implementation and effectiveness of the Commission Recommen-
dation 2001/193/EC of 1 March 2001 on pre-contractual information to be given to consumers by
lenders offering home loans (1) (Code of Conduct) and the use of the European Standardised Informa-
tion Sheet (ESIS), aiming to ensure that consumers obtain transparent and comparable information on
housing loans,

T. whereas the above-mentioned Code of Conduct appears to have been implemented with varying
degrees of success across Member States, yet without solving the overall problem of a lack of a com-
mon legal framework,

Introduction

Recognises the consumer benefits that would be brought by further well-focused integration of the EU

1.
mortgage market;

2.
Considers that any action at EU level regarding the European mortgage credit market must, first and
foremost, benefit the public directly as mortgage borrowers and that the mortgage credit market should be
accessible to a larger number of potential borrowers,
including those with a low or incomplete credit
profile, workers with fixed term contracts and first-time buyers;

3. Welcomes the Commission's wide consultation and insists that any specific proposals should be pre-
ceded by thorough economic and social impact assessments;

4. Welcomes the Commission's efforts to date to comply with better regulation requirements; however,
reminds the Commission that any conclusions reached should always be the result of an extensive consulta-
tion process;

5.
Notes the numerous obstacles to a single EU retail market for mortgage credit highlighted in the Green
Paper and urges the Commission to focus on targeted measures offering the greatest benefits, encouraging
market-led initiatives wherever possible;

(1) OJ L 69, 10.3.2001, p. 25.

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Cautions the Commission that attempts to harmonise products themselves might lead to legal incon-

6.
sistencies and thus produce a negative impact on the sector;

Insists that any EU action should not hamper competition and innovation, in particular regarding

7.
products, ancillary services and funding techniques;

Code of Conduct and pre-contractual information

Calls for moves towards the harmonisation of provisions on pre-contractual information, which are

8.
necessary to enable borrowers to take informed decisions on potential mortgage contracts;

Insists that such pre-contractual

9.
information must be accurate and comprehensible to allow an
informed choice, and that it should give the consumer as comprehensible and global a picture as possible
in the light of the available information on which the mortgage contract is based; stresses that, in the event
that the lender takes the initiative of offering a credit in another Member State, such information must be
supplied to the borrower as quickly as possible in the official languages recognised in the borrower's Mem-
ber State of residence;

10.
Considers the Code of Conduct and the ESIS to be important yet insufficient instruments for the
protecting the economic interests of citizens moving between Member States and likely to acquire property
in other Member States; encourages the Commission to assess progress and consider making the Code of
Conduct, which is currently voluntary, mandatory if early compliance is not forthcoming;

Funding

11.
Considers that the development of a single, open and compatible funding market is a first priority as
it will boost efficiency, allow international diversification of credit risk, optimise funding conditions and
capital allocation, and reduce borrowing costs; recognises the importance of and the potential for integrat-
ing market-led initiatives in this area;

Points out that the creation of a single secondary market for mortgages can not be achieved without

12.
a gradual convergence of national contract rules;

13. Welcomes the setting up of the Mortgage Funding Expert Group and calls for an in-depth analysis of
variations in national regulatory and legal practices affecting mortgages;

Considers that provisions in the Capital Requirements Directive on covered bonds and mortgage-

14.
backed securities offer important funding options;

15.
Suggests that the Commission consider how best to create a central database as a depositary of
information about the different national mortgage markets and transnational pools of mortgage securities
(such as default probabilities, losses from default and prepayments), which would enable investors to evalu-
ate and price adequately mortgage pools;

Suggests that a range of standardised packages of European mortgages could be traded on the capital
16.
markets with credit ratings according to their characteristics, thereby enhancing secondary markets in securi-
tised mortgages;

Calls on the Commission to consider the growing market of mortgages compliant with sharia law

17.
and to ensure that any legislation does not exclude the requirements of that market;

Recognises the important role of mortgage insurance in reducing the risk exposure of lenders and

18.
allowing access for a wider range of borrowers;

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Retail

19.
Calls on the Commission to investigate barriers which impede lenders' rights to free provision of
services or freedom of establishment in other Member States and whether the ‘general good’ clause is
being used to discourage cross-border activity;

20.
Supports Commission action to facilitate cross-border mergers and acquisitions in financial services,
while ensuring that distribution networks take into account the requirements of regional situations and
smaller markets, but notes that cross-border mergers and acquisitions alone will not promote integration
of the market in this area;

Considers that opening up the mortgage credit market to non-credit institutions, with an equivalent

21.
supervisory regime, will increase competition and the range of products;

22.
Recognises the beneficial role that credit intermediaries, such as mortgage brokers, can play in help-
ing customers access competitive mortgage credit from domestic and non-domestic lenders and supports
the Commission's commitment to consult on an appropriate regulatory environment for such operators;

Calls on the Commission to investigate impediments to the transfer of loans across borders, and to

23.
explore further the potential of the Euromortgage as a collateral instrument, including consideration of:

— the accompanying guarantees necessary for its set up and use, particularly as regards verifying the

collateral, public access to the deeds and effects vis-à-vis third parties;

— the status that it would be given in relation to other charges secured on land;

— the link between the credit and the collateral; and

— the legal consequences of a partial or full discharge of the guaranteed credit, a change in its assessment

basis or its transfer, whether vis-à-vis creditors or third parties;

Considers that any proposals to this effect should, if necessary, be accompanied by an impact assess-
24.
ment,
including legal aspects, with detailed studies of comparative law, as well as economic and social
aspects in line with the approach advocated under the guide to impact assessment approved by the Compe-
titiveness Council on 29 May 2006;

25.
Calls on the Commission to encourage the development of mechanisms for rechargeable mortgages
and life annuity mortgage loans with full guarantees in terms of public information, with due regard to
issues of confidentiality and effects vis-à-vis third parties;

26.
Considers that lenders are more likely to enter a market if national rules allow them to offer early
repayment terms at a price proportionate to costs or to vary interest rates in line with market conditions
and risk and that restrictions in these aspects are likely to impair the development of the market in terms of
funding, new products and lending to higher-risk borrowers;

Considers that an EU standard, defining the scope and method of calculating the annual percentage
27.
rates charged, should combine all charges to be levied by the lender and should ensure comparability among
products with the same maturity offered in other Member States; believes that borrowers should also be
informed in advance of any other charges related to the transaction and the borrower's legal obligations,
including items levied by third parties such as legal fees, registration and administration fees and the costs of
any valuations, or estimates of such costs if a precise figure is not available;

28.
Believes that in addition to providing exact information on the annual percentage rate, the lender
must provide information on any other types of charges or costs likely to arise from its activities, for
example the expenses incurred in examining applications, commitment fees, penalties for early full or part
repayment;

Recognises the potential of the Internet as a means for mortgage credit marketing, and recommends

29.
that the Commission study this further;

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Legal, fiscal and operational barriers

Urges the Commission to examine legal and regulatory barriers hindering a market-led development

30.
of a pan-European funding market for mortgage credit;

31.
Calls on the Commission to define the scope of its future proposals and to restrict it to mortgage
contracts and their guarantees (fixed charges on real estate), so as to avoid any overlapping with
COM(2005)0483;

32.
Calls on the Commission to take steps to ensure the smooth running of the secondary mortgage
market and establish a legal framework for conducting effective portfolio trading, in particular by identifying
the factors preventing the available legal refinancing facilities from meeting the desired objective and allow-
ing for the differing legal traditions and the different models for collateral security in land;

33.
Agrees with the Commission that the issue of the law applicable to mortgage credit contracts should
be addressed within the context of the revision of the 1980 Rome Convention on the law applicable to
contractual obligations; but supports the Mortgage Credit Forum Group's view that the law applicable to
mortgage credit contracts does not have to be aligned with the law applicable to mortgage deeds and that,
in the case of mortgage deeds, lex rei sitae applies;

Stresses the importance of comprehensive and reliable client credit databases and urges the Commis-

34.
sion to promote the development of a process of transition to a consistent format in all Member States;

Urges the Commission to facilitate cross-border access to client credit databases on a non-discrimi-

35.
natory basis as a priority for encouraging lenders to enter new markets;

Recognises that, subject to justifiable privacy protection, access to both positive and negative credit

36.
data is desirable;

37. Welcomes efforts to bring about improvements and adjustments in the law governing forced sales
procedures;

Supports the Commission's proposal of a scoreboard for the length and cost of

38.
procedures;

forced sales

Suggests that valuers' professional bodies should collaborate to adopt common EU property valua-

39.
tion standards of high quality and comparability;

Stresses the importance to lenders of easy access to full and accurate information on mortgage

40.
collateral and ownership rights;

41.
Favours encouraging access to land registers, where this is not prevented by existing legislation, and
supports all efforts to harmonise the informative value of these registers by means of national measures and
encourages the enhancement of the current European Land Information Service (EULIS) system;

Supports action to abolish tax obstacles of a discriminatory nature, such as differential fiscal treat-

42.
ment of local and foreign lenders and government fees;

Urges the Commission to consider,

43.
varying approaches to the tax deduction of mortgage interest across the EU;

in the case of cross-border mortgages, how to reconcile the

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Systemic, macroeconomic and prudential issues

Urges the Commission and the ECB to monitor and analyse the potential risks of increasing levels of

44.
mortgage debt and of mortgage credit funded from capital markets;

Conclusion

Concludes that there is potential for consumer and economic benefits by some further, well-consid-

45.
ered integration of the EU mortgage market;

Instructs its President to forward this resolution to the Council, the Commission, the ECB and the

46.
governments of the Member States.

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