The proposed directive on credit agreements relating to residential property covers all loans which allow the consumer to borrow money in order to buy a home, as well as certain loans to consumers to renovate a home. It also covers loans to consumers that are guaranteed by a mortgage or another comparable security.
It is envisaged the proposals will give rise to a more efficient and competitive single market for mortgages by creating a level playing field for all involved and make cross-border activity easier.
Internal Market and Services Commissioner Michel Barnier said: "During the boom years, we saw examples of borrowers and lenders acting on the assumption that the good times could not end. Lenders and intermediaries alike engaged in irresponsible practices, and consumers were not warned of the consequences of their decisions. The draft set of rules presented today is designed to ensure a high standard of pre-contractual information and improved lending practices across Europe, while promoting a dynamic, competitive and more integrated Single Market for mortgage credit."
The financial crisis has shown the damage that irresponsible lending and borrowing practices can have on consumers and lenders, as well as the financial system and the economy at large. This is particularly important in today’s integrated EU marketplace.
Today's legislative proposal demonstrates the European Commission determination to ensure that such practices are not repeated in the future, and to help consumers to regain confidence in the financial system.
In the UK, 20 % of GDP has been given directly to the financial and other sectors to cover bad debts and ensure sufficient capital and in 2006/2007, 45% of UK mortgages were granted without the consumer's income being verified.
The proposal has been submitted to the European Parliament and Council for consideration and adoption for this proposal to become EU law.