04/11 EC proposal for directive on residential mortgages regulation

Financial services email update

Tuesday 5 April 2011

The European Commission has published a proposal for a directive on Credit Agreements relating to Residential Property (the "Directive"). The proposal follows the Commission's June 2009 consultation on responsible lending and borrowing.

The proposed Directive covers credit agreements secured by a mortgage or by another security, loans to purchase a property and certain credit agreements aimed at financing the renovation of a property. The proposal would place obligations on credit intermediaries and creditors. The Directive distinguishes between those creditors that are credit institutions under EU law, and those that are not.

Key features:

The proposed Directive includes measures relating to the following issues:

  • Advertising and marketing: Providing general principles for marketing and advertising communications, standard information to be included and warnings of potential risks to consumers.
  • Pre-contractual information: Creditors and credit intermediaries will have to make certain information available to consumers at the pre-contractual stage.
  • Advice: Borrowers would have to be told clearly whether or not advice is being provided and such advice must be given in line with the profile of the borrower.
  • Creditworthiness and suitability assessments: The consumer's ability to repay the credit must be assessed and creditors will be required to refuse to grant credit if the assessment determines that the credit would be unsuitable for the consumer.
  • Early repayment: Consumers will be allowed the right to repay their credit before the expiry of the credit agreement, although Member States will be permitted to set conditions on the exercise of that right.
  • Regulation of credit intermediaries: The proposed Directive establishes principles for the authorisation and registration of credit intermediaries and for the establishment of a passport regime for those intermediaries.
  • Regulation of non-credit institutions providing mortgage credit: Non-credit institutions will have to be subject to adequate regulation.

Next steps

The European Parliament and Member States will now consider the Commission's proposal. It is not stated when the Commission intends the Directive to be finalised or when it should take effect in Member States.