MEPs are proposing to further regulate home loans compared with the European Commission’s initial proposal, starting with the inclusion of new measures concerning the post-contractual period. The overall aim is to enhance consumer protection. The opinion (first reading) adopted by an overwhelming majority, on 7 June, by the Committee on Economic and Monetary Affairs (ECON) of the European Parliament also approves the negotiation mandate with the Council. Since the Committee of Permanent Representatives (Coreper) approved a general approach a few days ago, the negotiations between the two parties should start quickly.

In 2008, the EU mortgage market for real estate property for residential uses represented around €6,000 billion. The financial crisis – which started because of real estate bubbles caused by risky mortgages – revealed the irresponsible practices that took place when such credits were granted and, above all, the considerable shortcoming in terms of consumer protection.

Consumers took out loans that were not adapted to their needs and their situation and that was dangerous, since they eventually found themselves unable to pay back their loans, in payment default situations or seizure situations.

Thus, in March 2011, the Commission presented a proposal for a directive, whose main aim is to enhance consumers’ protection against the risk they face when taking out a home loan. The aim of the proposal is also to impose prudential requirements and monitoring requirements to the loaners and intermediaries of these types of credits.

Antolin Sanchez Presedo (S&D, Spain), the MEP in charge of the dossier, said that “Parliament has set strong position for a real internal mortgages market; more transparent, professional and reliable; therefore, more efficient and less risky”.

Notwithstanding, the political groups negotiated until the last minute. Europoliticswas told that the credits that are not part of the scope of the text were bitterly negotiated. A compromise was finally found and is as follows: the credit contracts of a value of above €2 million are not be covered by the articles aimed at consumers; rather they will be covered in provisions on prudential and monitoring requirements.

One of the most important changes proposed by MEPs is the inclusion of measures to offer greater flexibility in the post-contractual phase, to the benefit of consumers. MEPs propose to consider early repayment (by the borrower) as a right, rather than just the result of a negotiation. They also propose that lenders should be given fair compensation for such early repayment. Another key measure is that, for loans denominated in a foreign currency, the borrower would be able to change the currency of the loan. Measures to increase loan portability are also foreseen, in particular the possibility – under certain conditions – for the borrower to transfer the mortgage from one residence to another when moving house. In cases of default of payment by borrowers, the committee proposes measures to ensure that lenders make every effort to work out a solution before initiating seizure procedures.

Concerning pre-contractual measures, MEPs propose to improve information provided to consumers by adding a new chapter on financial education for borrowers and by establishing a 14-day cooling-off period following signature of the contract (right to withdraw from the contract during this period).

The committee also strengthened measures related to certain prudential requirements.

In 2008, the EU mortgage market for real estate property for residential uses represented around €6,000 billion