EP Approves New Directive on Granting of Mortgages
January 30th, 2012
The Internal Market Commission of the European Parliament gave the go ahead on Thursday, to a draft directive that prohibits the granting of mortgages to consumers who do not have the capacity to repay the credit.
The directive “on credit agreements for residential property” requires lenders to refuse loans which do not have payment guarantees, and requires EU Member States to ensure that this is complied with through using consumers’ solvency databases.
“Whenever the evaluation of the consumer’s creditworthiness returns negative results regarding their ability to repay the loan during the term of the contract, the lender must refuse credit,” says the draft directive.
Under this initiative, Member States shall ensure that consumers provide to lenders, and other credit intermediaries, complete and accurate information about their financial situation in the context of the credit application process.
To support this information “documentary evidence may be requested from sources that can be verified independently.”
In addition, Member States must ensure that the lenders, principally financial institutions, are able to access a database on consumer creditworthiness, in order to verify that the consumer can comply with the credit obligations during the term of the mortgage contract.
These databases are to be managed by credit reporting agencies or private credit reference agencies and public credit registries, reported euroefe.com.
Solvency criteria must also be unified in the EU-27 so that all consumers in the EU have the same obligations and rights to a mortgage – the same criteria for measuring the creditworthiness of the applicant, equal rights in the period of reflection in order to compare offers, and the same prerogative to an early repayment under certain conditions.
This policy will also be put to a vote in the Economics Commission of the European Parliament,and will need the full approval of the plenary meeting before being adopted definitely.
For 70% of EU citizens, mortgages are the most important and prolonged financial commitment in their life.
In 2009, the total value of mortgage loans amounted to 6,126 million euros, i.e. 52% of the GDP of the EU.
While most mortgages were granted by financial institutions, in at least five member countries the small lenders accounted for 12% of the market share.
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“..prohibits the granting of mortgages to consumers who do not have the capacity to repay the credit” – Really? Are bankers really so stupid that they need to be told not to lend money to people who can’t afford to repay it? Really? I knew the bankers were reckless but I didn’t realise they were stupid too! Even I know that! If an unemployed man asked me to lend him 100,000 I would surely say no! See banks, it’s easy, just follow my lead.
This is thinking ahead and exactly the kind of proactive action we expect from the EU. If implemented quickly this could prevent the credit crisis of 2007/2008.