You are here: Home - News -

On foreign fields

  • 18/11/2002
  • 0
If we ever have a truly competitive, cross-border European mortgage market, UK lenders ' and custome...

If we ever have a truly competitive, cross-border European mortgage market, UK lenders ‘ and customers across Europe ‘ should enjoy the benefits. The sheer size of the UK market provides advantages for home-grown lenders, and while other EU countries may have higher levels of owner-occupation or larger incomes the UK is easily the largest national market in Europe.

Germany and France have greater stocks of houses, but levels of owner-occupation are lower. Only Italy, with around 17.5 million owner-occupiers, has more than the UK’s total of more than 16.5 million. Yet even Italy achieved only half the UK’s number of property sales in 2000 ‘ less than 700,000 properties, compared with the UK’s total of more than 1.4 million.


Not surprisingly, therefore, the volume of lending in the UK continues to dwarf other European countries. Gross residential lending in the UK in 2000 was worth almost e190bn (£121bn), more than double the total for the next largest national market, the Netherlands with e82bn. In the same year, net lending in the UK totalled e64bn, ahead of the e40bn figure for Germany and e34bn in the Netherlands. And since 2000, the buoyancy of the UK housing market has contributed to further strong growth in lending.

UK loans are also competitively priced compared to other European countries, even against the backdrop of a higher central bank rate. Recent figures from the European Mortgage Federation show that, across Europe, the UK’s average interest rate on new loans of 5.2% is bettered only in Ireland, Spain, Luxembourg and Portugal. Borrowers in Germany, France, Italy, the Netherlands, Belgium, Austria, Finland and Greece pay more, on average, for new loans than those in the UK.

So the size and competitiveness of the domestic market bode well for UK lenders if there is to be a true single European mortgage market, but there is no certainty this is what we shall get. In reality, there are a series of major hurdles to a competitive European market, including legal constraints, different methods of transacting property, tax regimes, restrictions on the type of lending institutions operating in different countries and customer preferences.

In addition, there are specific barriers for UK lenders resulting from the Government’s stance, particularly membership of the euro and a central bank that sets interest rates across the whole of Europe. The ways in which all these barriers to trade are addressed will be crucial in shaping future European mortgage market competition between lenders from different countries.

The regulation of mortgages across Europe, both voluntarily and by statute, is another fundamental issue. The European code of conduct ‘ by presenting information in a standardised way and allowing customers to compare different mortgage products ‘ is a welcome attempt to remove some of the barriers between nat-ional markets. The frustration for UK lenders is that when we signed up to the European code in 2001, we did so expecting it to mirror UK proposals for information disclosure under the Financial Services Authority’s (FSA) regime, which was due to come into effect earlier this year.

Final proposals

Since signing up, the UK Government’s decision to re-draw the scope of the FSA regime has delayed its introduction until 2004. This means the regulator has yet to finalise its proposals for information disclosure. Lenders want to make a single set of changes to their systems to meet both UK and European information requirements. So although the European proposals are modelled on UK’s Mortgage Code and CML members already meet most requirements, they are currently unable to comply fully with the European code ‘ and may not be able to do so for another two years.

While this unexpected delay is unwelcome, proposals from the European Commission for a Directive on consumer credit are potentially more damaging. If it is implemented in the form it is currently drafted, this Directive will require lenders and advisers to provide advice to borrowers taking out all forms of Consumer Credit Agreement. While most first mortgages would be outside its scope, the provisions would apply if borrowers request a credit drawdown facility under the terms of their loan.

This means every drawdown under the terms of a flexible mortgage, for example, would need to comply with European consumer credit requirements, as well as the FSA rules. The burden of two regulatory regimes ‘ and two separate regulators ‘ would probably make it uneconomical for UK lenders to offer flexible mortgages in their current form at current prices.

But flexible mortgages are highly popular with UK customers. The proportion of borrowers with this kind of product has grown from 8% to around 20% in four years. These loans provide a wider range of options for consumers, who have proved astute at using them to manage changing lifestyles. The danger is that the wrong type of regulation could hamper an innovative, competitive and consumer-driven UK lending industry, delivering the products customers want.

The goal for those regulating European mortgages should be to break down barriers between individual national markets and widen choice for customers. As it stands, there is a real threat mortgage customers will be denied access to cheaper and more flexible loans.

We need a concerted campaign, orchestrated by the UK Government, to ensure the proposed Credit Directive is not implemented as it is currently drafted. That would be an important move towards ensuring a competitive mortgage market in Europe delivers its full potential.

Bernard Clarke is communications manager of the CML

sales points

The UK has one of the largest and most competitive mortgage markets in Europe.

Current European proposals are loosely based on the UK’s Mortgage Code.

The EC’s Directive on consumer credit could mean an end to flexible mortgages.


There are 0 Comment(s)

You may also be interested in

Read previous post:

The self-certification market ' traditional haven of the self-employed ' is maturing and expanding. ...