EU on verge of mortgage accord

People looking for mortgages in future will be subject to much tougher scrutiny to ensure they can afford the repayments, under new legislation shortly to be agreed by the EU.

Designed to address some of the irresponsible lending and borrowing that has helped fuel the economic crisis, especially in Ireland and Spain, it should also create greater competition across the EU in the residential mortgage market worth 6 trillion, or 50% of EU GDP.

The directive is in its final stages of being agreed, with Irish civil servants hoping to conclude the negotiations on behalf of the EU member states with the Parliament tonight.

Expected to come into force in two years time it will mean changes in the country’s rules on mortgage and will mean that the Central Bank Consumer Protection Code 2012, which is an industry self-regulatory code, will be replaced with law.

The new rules will cover a number of aspects from strengthening the rights of mortgage holders, and greater regulation of loan providers to dealing with arrears and foreclosures.

The new rules are also designed to cover cross-border mortgages, making it easier to compare offers from lenders in other member states while a register of loan providers and intermediaries will also be established.

Negotiations on the new legislation have been going on for some time and the Irish presidency has so far held three trilogues — with Council, Parliament and Commission and says this evening’s will be the final one. They are confident of reaching accord.

There will be a new European standardised information sheet to make it easier for people to compare mortgages from all member states and new rules for advertisements to improve the transparency of what is on offer and setting out how information on, for instance, the annual percentage interest rate being charged should be communicated.

Differences between member states on exactly how to calculate the annual percentage interest rates are to be finalised this evening in the negotiations. Issues such as giving a five-year fixed rate and then moving onto a variable rate for the remaining term are an issue.

EU sources say they want to give as much information as possible, but do not wish to confuse consumers. Other fees such as mortgage registration fee should also be included in the calculation.

This system will be a new element for Ireland.