Importance of the EU mortgage market
The EU mortgage market is of crucial importance to the economy. In 2009, residential mortgage lending in the EU amounted to just over €6 trillion, which is equivalent to 52% of the EU’s gross domestic product. Home ownership in the EU is close to 70%.
The EP’s economic and monetary affairs committee will on Thursday 7 June vote on a report on how to improve residential mortgage lending, prepared by the Spanish Social-Democrat Antolín Sánchez Presedo.
Why changes are needed
In a previous interview Mr Sánchez Presedo pointed to the key role the mortgage market played in the current crisis: “Over-indebtedness is still at the centre of the crisis. Regulating mortgage markets would be an important first step to fight this.”
In his report he focusses on ways to make the mortgage market more robust. “I want to identify risky products and to give power to supervisory authorities to impose extra measures including consumer warnings and stricter prudential requirements so that those taking greater risks also bear the potential costs of those risks.”
What is being proposed
The report contains a number of recommendations to improve the situation for existing and prospective home owners:
-
more efficient assessment of the borrowers’ credit worthiness: only those who can pay back the loan should get one. This will reduce banks’ potential losses while imprudent borrowers are spared bankruptcy
-
more protection for borrowers: prospective home owners should be entitled to a 14-day cool-off period, so that they can change their minds about taking out a mortgage
-
more flexibility for borrowers: the cost of early repayments and risks of foreign-currency loan should be borne by banks, although “fair and objectively justified” compensation for lenders must be available
-
if the bank and the borrower both agree, then there could be a simpler way to settle the non-repayment of a loan. The borrower would just send the keys to the bank and that would be the end of it.
