Last updated on August 18th, 2015 at 01:44 pm
Irresponsible lending should be reduced by better authorisation, registration and supervision of lenders and buyers will be less likely to misjudge their own lending capacity as the rules will help to ensure that mortgages are only offered to people who can afford them.
The basic rules should apply throughout the EU but there will be some adaptations to reflect the mortgage and property market in individual EU countries.
The rules include plans to ensure that borrowers receive impartial financial advice and they understand the long term financial consequences of taking out the loan. Also, borrowers will be advised if a financial adviser will receive a commission or financial incentive by recommending a particular product, and any credit terms must be appropriate for the borrowers’ present financial situation and prospects.
There should be better protection for borrowers who find they have to default on their mortgages as, if it is expressly agreed in the contract, the return of collateral such as the property must suffice to repay the loan. Also, lenders will have to make every reasonable effort to solve the problem before initiating foreclosure proceedings, making reasonable and appropriate arrangements to settle the outstanding debt after the property has been sold must be reasonable. For example, the family situation must be considered and seizure of wages and pensions etc. limited, so that the borrower can maintain a minimum household income. Borrowers will also be given a 14 day cooling off and reflection period after signing the mortgage deal.
Mortgage products will be flexible, according to the new rules, accommodating lenders’ and borrowers’ changing circumstances. For example, borrowers will be able to pay off the mortgage early, and, whilst the lender can receive fair compensation for accepting early repayment, penalties for early repayment will be prohibited. Also, if a loan is made in a foreign currency, it can, under certain circumstances, be converted into another currency with the lender being compensated for the change. Borrowers should also be able to transfer the mortgage from one residential property to another when moving house if expressly agreed between both parties.
Tying practices – whereby lenders offer loans which are conditional to the borrower buying insurance and other products from a specified provider, and which make switching loan providers difficult – will be prohibited. Lenders will, however, be able to insist that borrowers take out an insurance policy with specific characteristics, and refuse to make the loan if they don’t.
