Cicero Policy Briefer

Issue 20, January 2008

Commission resists urge to impose regulation on EU mortgage market—for now

By John Rowland

“I’m dreaming of a White Paper, with every consultation response I write,” would surely have been the words of Bing Crosby had he been a keen observer of DG Internal Market. That single probably wouldn’t have sold 100 million copies but it might have had some appeal within the four walls of Cicero.

When it finally arrived on 18 December, more than six months later than originally anticipated, the big question was whether the Commission was planning to regulate the market—or whether it had heeded the advice of its Mortgage Funding Expert Group, which argued that market-led reforms should be the way forward.

Wisely, the Commission stepped back from the regulatory approach, stating that “integration of EU mortgage markets will be essentially supply-driven”. This will be a relief for lenders who feared it would bring increased compliance costs, for very little benefit to industry or consumer. Indeed the Commission itself acknowledged that barriers such as language and distance mean “consumers predominantly shop locally for mortgage credit and that the majority will continue to do so for the foreseeable future.”

Next Steps

Though it has ruled out a directive for the moment, the Commission does say that there are areas where legislation may be the most effective policy option going forward. Before it makes a decision on this, the Commission has set out a timetable for further analysis and consultation.

Areas which have been identified as a priority for further work within the White Paper include:

• Early repayment charges (an immediate priority)
• Improving the quality and comparability of information (including plans for a European Standardised Information Sheet or ESIS)
• Promoting responsible lending and borrowing (including the creation of a Expert Group on Credit Histories)
• Valuation, land registers and foreclosure procedures (including ensuring encouraging member states to place land registers online)
• Infringement policy (including an investigation as to whether national rules creating obstacles to the circulation of credit data or the operation of credit bureaux are an infringement of the Treaty).

It is no mean undertaking; as the table appended to this article illustrates, a considerable amount of investigative work needs to be undertaken in 2008. The industry will need to ensure that as consultation is undertaken next year a close eye is kept on the costs and benefits of any regulatory proposal. An unsettled marketplace does not need unnecessary or rushed regulatory interventions.

Will the Commission’s dream for an integrated mortgage market come true? It is difficult to say. But I suspect that a pragmatic approach that is realistic about what regulation can and can’t achieve is likely to bring greater benefits for industry and consumers than a grand scheme. Let’s hope the Commission agrees.

Source: EU Mortgage Credit White Paper

To view the White Paper visit:
http://ec.europa.eu/internal_market/finservices-retail/home-loans/integration_en.htm

John Rowland can be contacted on +44 (0)20 7665 9539 or click here to email.

Back to main policy briefer