Download pdf - European Union of Developers and House Builders

Download pdf - European Union of Developers and House Builders

FLASH 19/2011

Proposal for a mortgage Credit Directive relating to residential property,

the so called “Mortgage Directive”



The European Commission initiated a proposal for a directive on credit agreements relating to

residential property.

The purpose is to create an internal market in mortgage credit with a high level of consumer

protection and to promote financial stability by ensuring that mortgage credit markets operate

in a responsible manner.

For several years, the Commission has engaged in a comprehensive review of EU residential

mortgages markets to ensure the efficient functioning of the single market. In 2007, the

Commission adopted a White Paper on the integration of EU mortgage credit markets. In

view of the problems brought to light in the financial crisis and in the context of efforts to

ensure an efficient and competitive single market, the Commission undertook to come

forward with measures on responsible lending and borrowing, including a reliable framework

on credit intermediation.

The aim of the proposed Directive is to create a responsible, efficient, healthy and competitive

pan-European market that works to the benefit of consumers. It should also promote customer

mobility, cross-border activity of creditors and intermediaries, and create a level playing field

for all actors involved.

The proposed Directive:

• requires Member States to designate specific competent authorities to implement the


• stipulates important conditions for both creditors and credit intermediaries in

order to ensure a high degree of professionalism in the provision of mortgage credit,

such as an obligation to act in the best interests of the consumer and requirements with

regard to having appropriate knowledge and competence;

• introduces general principles for marketing and advertising communications and

sets out the form and content of information to be included in advertising. The

standard information concerns key features of the credit and, when the credit is

secured by a mortgage, a warning as to the consequences for the consumer in the event

of non-observance of his commitments linked to the credit agreement;

• creates an obligation for creditors and credit intermediaries to make general

information available on the range of credit products at all times. It further introduces

an obligation for creditors and, where applicable, credit intermediaries to provide

personalised information to the consumer on the basis of a European Standardised

Information Sheet;

• requires credit intermediaries to disclose information to consumers concerning their

identity, status, and relationship with the creditor, prior to the performance of their

services in order to increase transparency of possible conflicts of interest;

• introduces an obligation for creditors and credit intermediaries to give explanations on

the proposed credit agreement(s) to the consumer at the pre-contractual stage,

determined by the level of the consumer’s knowledge and experience with credit;

• requires, for mortgage credit products, the use of the definition of the annual

percentage rate of charge (APRC) used in Directive 2008/48/EC. Details of the APRC

calculation method are given in Annex I and provisions for amending the

methodology are laid down in order to be able to take market developments into


• provides for information to be delivered to the consumer in the event of changes to

the borrowing rate;

• requires the creditor to assess the consumer’s ability to repay the credit, taking into

account the consumer’s personal circumstances and based on sufficient information. It

also introduces a duty for the creditor to refuse to grant the credit where the results of

the creditworthiness assessment are negative;

• introduces the requirement for'responsible borrowing', namely that the borrower

must provide all necessary and correct information to enable the creditworthiness

assessment to be carried out;

• introduces provisions to ensure that creditors are able to access information from

relevant databases on a non-discriminatory basis;

• establishes standards to ensure that, where advice is given, it is clear to the borrower

that advice is being provided, without introducing any obligation to provide advice;

• requires Member States to ensure that consumers have a right to repay their credit

before the expiry of the credit agreement, giving freedom to Member States to set

conditions on the exercise of that right, provided that such conditions are not

excessively onerous;

• establish the principles for a regulatory and supervisory framework for credit

intermediaries. This framework provides for the authorisation and registration of

credit intermediaries, subject to compliance with certain requirements on entry into the

business and on an ongoing basis, and for the establishment of a passport regime. The

requirements apply to all credit intermediaries, whether they are tied or not in order to

ensure a high degree of professionalism in the industry;

• stipulates that non-credit institutions must be subject to adequate authorisation,

registration and supervision;

• requires Member States to ensure that appropriate administrative measures or

sanctions can be taken in the case of non-compliance with the Directive;

• requires Member States to establish out-of-court redress bodies for the resolution of

disputes between creditors and consumers and between credit intermediaries and


You can access the procedure file here :

Please find below the e-mail of EPF of August 11, 2011 related to this matter.

John Stewart (UK) is preparing an internal position paper for UEPC/EPF. Please

provide John Stewart with your remarks before September 1 st 2011 : and send us a copy:

Thank you for your co-operation.

Laurent Wille

Managing Director *


Rue de la Violette 43, 1000 Brussels

Tel +32 2 511 25 26

Fax +32 2 219 71 99

* bvba crivi

Mortgage Credit Directive – European Parliament Amendments Regulating Property Indices

and Valuation

Earlier this year, I informed you (epf11-43 of 02.05.11) of the Commission’s Proposal for a Directive on

Credit Agreements Relating to Residential Property, suggesting that there wasn’t much of specific

interest to owners, investors and developers and that, even if it did have an impact on mortgage

lending volumes, it was unlikely that the EU authorities would be particularly interested in EPF’s views

on what the proper macro-economic and prudential balance is between too much and too little

regulation of mortgage lending/consumer protection in the current economic context.

At Budapest, the Managing Committee decided:

“Though it was acknowledged that the property sector would always be a very secondary force in any

lobbying campaign in comparison to the banks, it was nonetheless felt that wherever possible EPF

should help the banks to avoid regulatory measures that reduce the offer of or access to mortgage

credit because of the clear effect on housing markets. It was agreed that UEPC would take the lead in

any action.”

On 18 July, the Rapporteur of Parliament’s Economic and Monetary Affairs Committee, Antolín

Sánchez Presedo, issued draft amendments (attached), including amendments on property indices

and valuation that merit your attention:


Amendment 151 – Article 18l (new), page 90

Article 18l

Property Indices

1. Member States shall promote the use of indices of residential immovable property prices at

national, regional and local level in order to provide an improved basis for the monitoring of

trends in valuation of residential immovable property.

2. EBA* shall develop guidelines in accordance with Article 16 of Regulation n° (EU) 1093/2010

in order to allow comparability of the different property indices.

European Banking Authority, the powerful new regulatory body replacing the old Committee of European

Banking Supervisors. Also has a role advising the Commission.

Paragraph 1 is harmless, because it’s only about each country freely and separately ‘promoting use’,

but paragraph 2 conjures up the EBA stepping in to replace IPD or, alternately, turning to IPD for a


A major national association of banking interests will oppose paragraph 2 for several reasons:

• They believe that the EBA does not have the capacity to develop an efficient and useful

methodology truly enabling comparability of 27 national indices.

• They fear that if the EBA tries, the result will be so weak as to be unhelpful to banks, and they do

not want any such thing to start interfering with their very satisfactory national databank and


• They also fear another scenario by which the EBA, recognising that it has no capacity to do any

such thing, would actually turn to IPD. In their country IPD is only used for one very particular form

of real estate and they do not consider IPD quality will be good enough for more, especially in


I presume that the Managing Committee will not be enthused by yet another EU regulatory takeover of

real estate activity. If so, we can support the banks.


Amendment 150 – Article 18k, p. 89

Article 18k

Valuation of residential immovable property

1. Member States shall ensure that appraisers carrying out valuations of residential immovable

property which are used to value the collateral in credit agreements are carried out by appraisers

who are professionally competent. (shoddy drafting)

2. Member States shall ensure that a public register is established and regularly updated of

appraisers who are deemed professionally competent.

3. Member States shall ensure that appraisers who carry out valuations used by a creditor to value

the collateral are sufficiently independent of the creditor, the borrower and, where applicable, the

credit intermediary, to provide an objective and impartial valuation.

4. In order to ensure consistent harmonisation, the Commission should be empowered to adopt

delegated acts in accordance with Article 26 in order to specify minimum valuation standards,

minimum standards regarding independence and minimum professional standards for appraisers.

5. Member States may specify further criteria which shall be used to determine the professional

competence of appraisers. Such criteria shall not include a requirement for the appraiser to be

established in their territory.”

TEGoVA is probably going to oppose the public register (paragraph 2) because it risks raising

obstacles to the free movement of valuers in the Internal Market and they want the profession and

their clients to heed their guidance on who is or is not competent.

They will welcome binding requirements on the basic principles of competence, independence and

valuation founded on reliable and consistent valuation standards, as long as the Commission doesn’t

start harmonising the valuation standards themselves, but they have little fear of that because the

Commission knows that the effort would be completely beyond its capacity.

I see no problem with the remaining Sánchez Presedo valuation amendments:

RECITALS (meant to be explanation of articles but sometimes just a statement for statement’s sake.

Not binding.)

Amendment 16 – Recital 14 a (new) p. 18 NB: ‘New’ means there was nothing from the Commission

on this.

“… It is also important to ensure that the residential immovable property is appropriately valued both

before the conclusion of the credit agreement and in the event of default.”

Amendment 34 – Recital 32 a (new), p. 31

“… It is also important that the value of the collateral is fairly calculated ??? when determining any

outstanding obligation on a consumer in default and that the structure of any such obligation takes

account of the need for the consumer to have a minimum subsistence income.”

Amendment 35 – Recital 32 b (new), p. 32

“The work commissioned by the G20 in response to the crisis has demonstrated that problems can

arise where residential immovable property is inappropriately valued and where the role of the

property in providing collateral for a loan or financial instruments is unclear. Such problems can have

implications for individual consumers, financial stability and the wider economy. Measures are

therefore needed to ensure that valuations are provided by competent appraisers in line with

appropriate valuation standards, and to ensure that the connection between a credit agreement and

the residential immovable property and any other financial instrument for which it provides collateral is

registered and can be traced using a standardised EMKI (a code containing mortgage info; another


Amendment 41 – Recital 39, p. 36

“In order to ensure consistent harmonisation and take account of developments in the markets for

credit relating to residential immovable property …, the power … should be delegated to the

Commission, in particular to specify details concerning the professional requirements applicable to

creditors’ staff, credit intermediaries and valuers… (what’s new from the Rapporteur compared to the

Commission Proposal is in bold italics).


Amendment 67 – Article 3 r (new), p. 48

‘Appraiser’ means a natural or legal person who, in the course of his trade, business or profession,

carries out valuations of residential immovable property or the land on which such residential

immovable property is or could be situated.”

Amendment 89 – Article 9(1)(2)(j), p. 57

In the Commission’s Proposal, Article 9 states that precontractual information must indicate “whether a

valuation of the property is necessary and, where applicable, by whom it should be carried out”. The

Rapporteur wants to replace this with indication of “the measures required regarding the valuation of

the property and any related cost to the consumer”. This could be interpreted as pushing in the

direction of mandatory valuation, but it is so badly drafted it will doubtless fall.

Amendment 121 – Article 14(1 a)(a)(new), pp. 69-70

“Member States shall ensure that the assessment of creditworthiness … shall not allow any reliance

on an increase in the value of the property as a means of repaying the loan;”

Amendment 139 – Article 18 a, p. 79

“Member States shall ensure that lenders allow borrowers to keep a credit agreement when moving

house provided that the value of the new property is sufficient to serve as the collateral required by the

credit agreement …”

Amendment 145 – Article 18 g (5), p. 85

“Member States shall ensure that where foreclosure proceedings are initiated the lender shall credit to

the consumer as the value of the collateral a value at least as great as the most recent valuation,

carried out in conformity with the minimum requirements for the recognition of real estate collateral

established in Annex VII, part 2, point 8 of Directive 2006/48/EC (Capital Requirements Directive)”


This is ‘just’ the work of the Rapporteur. All members of the ECON Committee will have the chance to

table amendments, the deadline for which has not yet been set, but it will likely be end September at

the earliest and probably second half October. That means that the Managing Committee must decide

what, if anything, it wants to do before its October meeting, say, by early September.

* * *

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